August 8th, 2014
Mortgage is a scary word; literally. The etymology is from the Latin Mortem “death” and evolved into the old French “Mort Gage”, translating to “Death Pledge”. It’s no wonder home buyers cringe every time their trusted Realtor, in the excitement of touring homes, asks “Have you been pre-approved for a mortgage?” The response from home buyers ranges from concerns about their credit being run to the idea of committing to a mortgage in the shopping phase. In reality, having a mortgage pre-approval in hand early on or prior to house hunting is beneficial to the buyer in planning what they can afford and strategically approaching their home search. The following concerns are the most common among home buyers regarding pre-approval status and why they should have one in hand when they’re shopping.
“I’m hesitant that obtaining a pre-approval will hurt my credit score”
Hard inquires made in excess on your credit can negatively impact your credit score, however, according to Mortgage Lender, David Simon, with AJM Mortgage in Pittsburgh, taking steps to obtain a pre-approval is not as detrimental to your credit score as you may think, “The reality is that an occasional credit inquiry will not have a material impact on your credit scores.” He continues to say that, “While it may drop your score a couple of points, in only very rare cases will this result in a borrower not being able to qualify for a mortgage.” But how exactly does it work when purchasing a home? Running your credit for the pre-approval of a mortgage is based on your TransUnion FICO credit score, David explains, “Your TransUnion FICO score (mortgage scoring model) has a range of 309-839 and the minimum score to qualify for a conventional loan is 620 so there is a spread of 219 points between the low end to the high. The average FICO score is somewhere in the low to mid 700s (depending upon what article your read) so as you can see it isn't very likely to cause your loan to be denied.” Once your mortgage lender has run your credit score, he or she can use that credit report for up to four months. If we haven’t found or closed on a home within the four month timeframe, your lender does not have to run the credit again until we do find a home, which leads me to the next concern from home shoppers…
“I just want to be sure that this is the house we want”
What if you finally find the home you’ve pictured all along? It has the three car garage you wanted, in the school district you most desired your children to attend and stainless steel appliances are included. In most cases, the agent listing that beautiful home will want a copy of your pre-approval attached with your offer. Why? They simply want to be sure that you’re able to undertake the fiduciary obligation of a mortgage and pay for the home upon acceptance of your offer. Bringing an offer to the table means you’re ready to purchase the property and you should be prepared. It’s heartbreaking to watch a client tour five, six, seven homes, fall in love with one and wait to be pre-approved only to discover that they can’t afford it.
“I don’t want to have two mortgages” or “I don’t want to be committed to a mortgage when I’m still searching”
A mortgage pre-approval is non-obligatory and turns you into a serious buying candidate in the eyes of a seller. In fact, there are some properties on the market that cannot be shown without a pre-approval. As a buyer, take a few moments to speak with your preferred mortgage lender and determine what you want to pay on your monthly mortgage payment. You may be pre-approved for $300k, but, in reality, would feel more comfortable making payments within the $250k range. If you don’t determine your ideal monthly payment early in your search, you may waste valuable time looking at homes you can’t afford and worse, miss the opportunity to purchase a home in your range. If you currently have a mortgage, speak with your Realtor about what you need to sell your current property for to cover the balance of your current debt.
When shopping for a home, taking a few moments with your mortgage lender to plan financially will help you understand exactly what you can afford and tailor your search specific to your criteria. You can feel confident knowing that every house you schedule to see with your Realtor, with pre-approval in hand, you can afford and potentially buy. So, house hunters, the next time your Realtor asks, “Have you been pre-approved for a mortgage”, no need to cringe, plan with you mortgage lender and you can assuredly say, “Yes, let’s look for houses with granite countertops”.
A special thanks to David Simon, Mortgage and Lending with AJM Mortgage. For more information regarding mortgage pre-approval and how it affects your credit, visit http://activerain.trulia.com/blogsview/4456569/how-does-running-a-pre-approval-effect-a-buyer-s-credit and www.ajmmortgage.com.