After staying home for a while, you have decided now is a great time to buy a home with a pool, a bigger office or extra bedroom. You have noticed that interest rates are low and new homes are coming on the market. Open houses are beginning to show up in the newspaper and you are ready to take a look.
Open houses are easy! You walk in, have a friendly conversation with the REALTOR®, take a look around, and move on to the next one. After a few open houses, you see a wonderful house that meets all your criteria. You want to make an offer. You tell the REALTOR® that is showing the home that you want to make an offer. They are thrilled to help you, after all, that is why they are holding the home open. The very first question they ask you is; “Are you pre-qualified with a lender?”. If your answer is “No”, they put you in touch with a lender they know and you are off and running. In a few hours or days, you will be ready to make that offer. Great! In the meantime, a pre-qualified buyer walks in and makes an offer that gets presented immediately. The offer is acceptable to the seller and they accept the offer. You never had a shot because you were not prequalified.
1. The first reason to get pre-qualified before you look at homes is so that you are ready to make an offer when you see the home you want. Right now, homes are selling very quickly and if you are not ready to make an offer, you will lose out. The current Arizona contract states that a pre-qualification letter must accompany the offer along with ‘proof of funds’ to close the transaction. Even if you are paying cash, you have to provide proof that you have the money located somewhere besides your mattress. A picture of the money does not count.
2. You want to be pre-qualified so that you know how much you qualify for, the approximate costs you will be paying on a monthly basis, the rate you are going to pay, and what the lender is charging you. The lowest interest rate doesn’t always translate into the lowest payment. Look at the written Loan Estimate provided by the lender. This will tell you what you are paying overtime. Sometimes the low-interest rate is tied to a lot of upfront charges or extra fees added to the loan. The Loan Estimate sheet will walk you through all the charges connected to the loan. Review this document very carefully.
Also, once you have an accepted offer on the house of your dreams, it is hard to change lenders and keep the offer on track.
You can also lock in a low-interest rate. Interest rates are a lot like the stock market, they move up and down all the time. When times are volatile, the rates can change hourly. We have seen this happen a lot recently and the one thing that is for sure, if you don’t lock your rate in if the rates go up, you will have less buying power. A 1 point change can lower what you qualify for by $100,000. Right now, rates are good
3. A pre-qualification will let you know what buying power you have, the types of loans you can get, and how much you are going to pay on a monthly basis. You may qualify for a loan that has a higher payment than you want to make. The loan officer can adjust your loan amount to fit the payment that you are comfortable with. There is a variety of loans on the market, so you want the loan that best fits you and keeps you comfortable.
Currently, our inventory is low and we have very few homes to choose from. Even though our inventory is low, there are more listings coming on the market and they are selling fast. As a buyer, you want to be ready to make an offer when you see your next home, so get pre-qualified!
BIO
Joan Wilson is an active REALTOR® with Long Realty in Sierra Vista and Cochise County. She is a member of the Huachuca 50 board, past President of Women’s Council of REALTORS®, and current President of the Southeast Arizona Association of REALTORS®.
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