You should get Your Mortgage First

by Tom Tousignant

in Blog, Financial Safety, Home Buying, Mortgages

 When someone is thinking up buying a house, they rarely, if ever, wake up one day with the dream of getting a mortgage.  The dream is to own a home. So people start looking for a home first, and that is where the problems usually begin

Here are the top 5 reasons to get your mortgage first: (plus a bonus reason)

  1. You won’t spend too much. It’s easy to see that if you fall in love with a house first, then talk to a mortgage lender about the down payment and monthly payment, you could end up buying more house than you shouldafford.  By getting your mortgage first, you will know exactly what your closing costs, down payment and monthly payment will look like, so you won’t over extend yourself.  Too many people, after falling in love with a house, justify to themselves that they can afford the higher than expected costs. After a while, they regret the decision as they have trouble making ends meet.
  2. You won’t spend too little!  This sounds crazy, when you just read reason #1, but think about it – if you spend too little and settle for a house that is too small, or in an inconvenient location(too far from work), or is missing a feature that you really need(2 car garage or bonus room), you will be looking to move and upgrade your house in just a few years.  So, if you buy a house that is too small, you will waste all that money on closing costs on the first house, and then spend even more money selling the house in just a few years and having to buy a new house with the right features. If you get the mortgage first, you will know what the right price range is and you can buy the right house for you the first time.
  3. You won’t get surprised.   Many mortgage companies offer a full pre-approval.  Don’t confuse this with a fake pre-approval.  With a full pre-approval, your mortgage professional will collect pay stubs, bank statements, photo id, W2’s and possibly tax returns and have you sign all the application paperwork and disclosures.  If your ‘pre-approval’ consists of a phone call with a loan officer, it’s a ‘fake’ pre-approval and really just a pre-qualification.  A pre-qualification simply says, ‘Based on what you have verbally told me, we should be able to get your loan approved”.   A fake pre-approval or a pre-qualification gives you an indication of loan approval, but it’s not the same thing.  You still need to complete the paperwork and have an actual underwriter review your file.  Some mortgage companies won’t do this, but a good one should offer to get you you fully ‘credit approved’ prior to finding your house.  This leaves only the appraisal and sales contract to be reviewed by the underwriter, which leads to reason #4.
  4. You can eliminate most of the stress of buying a house.  Most of the stress people experience when buying a house is totally preventable and mortgage related.  If you have your mortgage approved before you find the house, there isn’t really much left to do – pack a few boxes, clean up your old residence, and off you go.  Actually, there is a ton of stuff left to do.  Unfortunately, you can’t do any of it until you find the house and agree on the sales contract.  Except, of course, take care of the mortgage. So, rather than thinking about getting the mortgage approved, changing you address, packing, cleaning, registering kids in school, figuring out new routes to work, calming family members’ nerves about the move, changing your driver’s license and voter registration and 100 other things, you can focus on the 99 little things that still need to get done.  The mortgage application process is the only thing you can do prior to finding your new house, so don’t procrastinate and get one of the biggest items crossed off your to do list.
  5. Your confidence will go sky high.  When your financing is taken care of, you will have a great deal of confidence that you are buying the right priced house and you will have no worries while waiting for the lender to call you back with news.  Eliminating uncertainty will increase your confidence about the whole process.
  6. Bonus:  You will be able to negotiate a better deal.  If you are competing with another buyer, or if you are the only buyer, by being able to guarantee that you can buy the house, the seller will be much more comfortable accepting your offer, even if it’s not the highest one they receive, or not as high as they hoped for.  In today’s market, a fully approved buyer eliminates all the stress and surprise from the seller, too.  If you reduce their stress and uncertainty, you will be able to negotiate a better deal.

So, on that day when you wake up and decide it’s time to buy a house, stop, reconsider, and go buy your mortgage first – they really are two separate things.

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