Pre-Approved Loans Help Quell Home-Buying Stress
By DAVID L. JONES
Contributing Writer
Here is a real estate associate’s nightmare.
A man and his wife contact the associate. They want to see houses in a certain price range. The associate is delighted with his good fortune. The couple shows up at the appointed hour nicely dressed driving a car that screams affluence.
For days the associate caters to their every whim. Gallons of gasoline are burned (at the associate’s expense) in the quest for the perfect abode. Finally a house that would appear to be more than satisfactory is found. The couple goes to the bank to get a loan.
The loan officer has bad news. While they may appear to be affluent they really are not. They can’t afford the house. They couldn’t if they found Captain Kidd’s treasure and added it to their holdings. They couldn’t if King Midas loaned them his touch.
Now the fault for all this might not rest entirely with the unhappy couple. They surely wouldn’t be the first to let their dreams outrun reality. The real estate associate at some point in the search should have gotten assurance they had the cash, credit or to back up their talk. The associate has to shoulder some of the blame.
Still, the fact remains that the associate has squandered valuable time on a fruitless search, the couple has been doomed to disappointment, and the whole mess has left a bitter taste in a number of mouths.
How could all of this be avoided? Simple! The couple should have gotten pre-approved.
“It’s really vital for those people, and there are a large number of them, who really don’t have a good idea of what they can do,” one loan officer recently told me. “More and more both sales associates and home owners are demanding proof a buyer has already been approved up to a certain level. The sales associate, of course, doesn’t want to waste time showing properties that cannot possibly be sold and home owners don’t want to have their houses constantly opened to people who are not serious buyers.”
“I would say,” said another officer, “that more than half the would-be buyers don’t really know what they can afford, but the number seems fairly evenly split between those who overestimate their total potential and those who underestimate.”
So how do you find out what the lending institutes think you can afford.
“We need some personal information; what your salary is, how long you have worked at your current job, your current liquid assets, that sort of thing. We also research your credit rating.
“The important thing is to determine your borrowing ability before you embark on the home search. This way you avoid the embarrassment, expense and disappointment of not being able to close on a purchase due to mortgage denial or unavailability. If you want to make an offer on a property the owner will want to know you can perform.”
In general figure you can borrow one-third of your salaried income. Income from second jobs held at least two years could be added although most part-time work (such as seasonal odd jobs) can’t be included. Guaranteed income such as the interest from government bonds can be added.
How about shopping for the best rate? Most agencies, said one official, follow pretty much the same guidelines, but it doesn’t hurt to ask.
Are you worried past economic sins will come back to haunt you? A bankruptcy declared in 1990 shouldn’t cause a blip.
“The most important period,” said a loan officer, “is the recent past. The last 12 months are crucial. Then comes the period from 12-24 months. If you’ve been faithful in your payments an ancient bankruptcy shouldn’t hurt you.”
What kind of loan should you seek? VA? FHA? Conventional? How much should you put down?
Ask a loan officer.
David L. Jones is a real estate associate with Prudential-Detrick Realty. He can be reached at (918) 381-2345.
Updated 10-24-2006
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