Imagine taking the man or woman of your dreams out for a fantastic dinner – the food is great, the conversation flowing, and you are knocking it out of the park – and then your credit card gets declined right in front of your date. Embarrassing! That's what buying a home could be like if you haven't nailed down your mortgage first. Everyone's excited and happy, and then you can't close the deal.
Don't let this happen to you. Your first step should be pre-qualifying for your loan and choosing your lender. This is what can happen if you rush in unprepared:
1. Sellers and Agents Won't Respect You
Real estate agents are constantly dealing with "looky-loos." These are people who tour properties for fun, or for decorating ideas, or "to see what's out there." They are not serious, but they take up a lot of time. Experienced agents want to weed these folks out quickly and kick them to the curb. One of the easiest ways of determining who's serious and who's silly is by asking for a pre-qualification letter. If you show up expecting to be chauffeured to property all day without having done this one little thing, agents and sellers are likely to be skeptical.
2. You Could Lose the House
Once you enter into a real estate purchase, you're under contract and expected to perform certain duties by specific dates. For example, you may have three days to produce a pre-qualification letter, or 14 to come up with a mortgage pre-approval, or 30 to close the transaction. Missing those dates can cost you the deal, or cause you to have to pay some sort of penalty. If you have an accepted offer but aren't yet working with a mortgage lender, you're starting from scratch. There may be glitches ("That collection on my credit report isn't mine!"), surprises ("The underwriter wants my divorce decree and I can't find it"), or delays ("the appraiser is backed up and it will take ten days").
3. Your Family Might Hate You
There you are – you've made an offer on a great place, your kids have picked out their rooms and they can't wait to swim in the pool. And then you discover that you don't qualify to buy that house because it's too expensive. Massive disappointment. Your wife is in tears. Your agent is angry. And your 10-year-old twins won't speak to you until they graduate high school.
4. Your Hair Could Fall Out
Even if you do eventually get approved for your home loan, and you manage to close on your purchase, it can be traumatic. In fact, many researchers rate buying a home and moving as one of the most stressful life events people experience. Imagine having everything boxed up; you're ready to move, and suddenly you have to unpack to find some old bank statements to prove that you receive your child support on time or that your tax liens were paid off four years ago. Or picture the seller with a back-up offer that's higher than your purchase price, and he's dying for you to miss your loan approval deadline so he can get more for the property – feel those follicles loosening and your blood pressure soaring? These things happen ALL the time – ask your agent.
Why would you want to add to your stress levels by being unprepared? The more you take care of on the front end, the easier the rest of the transaction will be.