Ask Phyllis!
Reasons a buyer should be pre-qualified prior to their home search

Dear Phyllis,
I am a first time home buyer.  I have calculated the payment for a $500,000 home and am comfortable with that amount. I have been going to open houses and all of you real estate people want to know is whether I have talked to a bank and gotten pre-qualified.
Why can’t I find a house and then start the loan process? I know what I can afford and it’s really not any of you agents business.  
  Gene

Dear Gene,
A lot of different thoughts come to mind but first, let’s discuss open houses. The home seller is opening their home up for prospective buyers to come and visit. Ideally one of those buyers will like the home, make an offer and close escrow.

There are several reasons you should get pre-qualified prior to falling in love with a home:

1)    You indicate you are comfortable with a $500,000 home. How have you calculated the payment?  Interest rates vary depending on your credit (FICO score), and percentage of down payment. Have you taken property taxes and home owners insurance premiums into consideration? The bank isn’t going to make you a loan based on your comfort level.  The bank may not think you are qualified for a $500,000 home.

2) When you open escrow there will be certain expenses, such as paying for a home inspector and an appraisal. Why would you want to be out of pocket nearly $1,000 for those expenses if you might not qualify for the purchase?

I spoke to Floyd, owner of La Canada’s BWA Mortgage, who told that me in the best of circumstances expect your pre-qualification to take three hours.  Of course this is assuming that Floyd can block out a couple of hours right away and that you can provide full tax returns for two years, last two months pay stubs and any other documents that might be needed.

Once you have provided all that information, he will need  to speak to you, reevaluate the information, etc.

For the self-employed, it isn’t only supplying complete federal tax returns with all schedules, 1099’s, K-1’s etc., it often involves receiving updated information from your accountant including profit and loss statements and letters of explanation.

The average time to get pre-qualified is often a couple of weeks and this is because the borrower doesn’t typically drop everything they are doing each time a request is made.

Many of our local listings are selling quickly and in multiple counter offers. It is not unusual for many of the homes to have five or more offers. In these multiple offer situations the seller is not going to wait on a buyer to complete their pre-qualification. I can’t recall the last situation when a listing agent and the seller didn’t ask to see a pre-qualification letter prior to considering an offer.

Why would a seller take their home off the market, without the assurance that the buyer is qualified?

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Phyllis Harb is a Realtor® with Prudential California Realty.
She may be contacted at (818) 790-7325 or by email AskPhyllis@RealtorHarb.com.