Finding or Financing? What Comes First?

The Texas housing market continues to be one of the hottest real estate markets in the nation. If this is your year to buy a new home, it’s a good bet you are watching the real estate ads, checking online listing sites, and spending your weekends at open houses. But if you’re serious about buying a home, the best way to spend your time initially may be on a phone call to your lender.

The Value of Prequalification

Making a phone call first might be a particularly good idea because, as a buyer, you can expect plenty of competition for the best properties. It’s not uncommon for a well-priced home in a desirable location to get multiple offers. Prequalified buyers have an edge, and all other things being equal, a prequalification letter in hand can be the deal-maker for your offer over another.

Your mortgage lender will guide you through the prequalification process. A strong prequalification letter includes the lender reviewing your proof of income, such as W-2s and pay stubs from the last two years, as well as statements from all your financial accounts. If you are self-employed or receive incentive pay of any type, you will need to provide copies of the last two years’ income tax returns as well. Your lender will run a credit report, and will consider your credit score, credit history, and debt-to-income ratio, and issue a prequalification letter stating the loan amount you have qualified for. Typically prequalification letters are valid for up to 90 days.

Increase Your Home-Buying Odds

Armed with all the knowledge that comes with prequalification, you can target your new home search to properties for which you know you already qualify. Why waste your time touring homes that simply are not in your price range? If you are prequalified for a $350,000 mortgage and plan to make a 10 percent down payment, you now know that you can expand your search to homes priced up to $385,000.

When you find the perfect home, you can act quickly and with confidence. Sellers are more willing to accept an offer when they know the buyer can legitimately afford it. Accepting an offer from a buyer who’s not prequalified means they will take their home off the market for several weeks waiting for the buyer to secure loan approval. Should the deal fall through, they’ve lost valuable selling time. And in a multiple offer situation, your mortgage prequalification could be a critical differentiator in landing the deal.