Don't put the cart before the horse!

You don't put on your shoes before your socks do you? That's just silly!

CNNMoney.com has a very interesting series entitled "Money101". I find myself browsing the CNN website often. I have it saved to my desktop. They always have interesting articles related to Real Estate, Finance and the economy in general.

Money101 Lesson 8 caught my eye recently. It is a list of the top 10 things one should know before buying a house. I read the list over and, while all were excellent points, #8 jumped out at me. And I quote, "8. Before house hunting, get pre-approved". Hmmmm, sounds reasonable, doesn't it? I cannot tell you how many times agents have complained to me that someone called on one of their listings wanting to see it right then and there. The agent meets them to open the door, shows the property only to find out later that they haven't even spoken to a lender yet and, often times find out, they can't afford the house.

Educating yourself is the first step to homeownership - this requires talking to a lender. I mean, if you truly have a Honda budget, are you seriously going to the Mercedes Benz dealer looking for a car? Of course not!

Most people do not realize that getting pre-qualified or pre-approved for a loan requires more than just a good credit score or good assets. There are so many facets and every situation is different. A lender will initially look at the basics:

1. Credit: Not just the score itself but your credit history. Do you have any late payments, disputed accounts, judgments, liens, bankruptcies, foreclosures, etc.?
2. Income: How much do you make? That can sometimes be a complicated question. There are very specific rules for income and it has to be analyzed on a case-by-case basis.
3. Assets: How much money do you have to work with? We are interested in where the money is coming from to purchase a house. We must fully document it's source and show that you have enough to cover down payment, any closing costs you may be responsible for and then some. Again, this is analyzed on a case-by-case basis.
4. Liabilities: How much do you owe? We will look at your credit report and count all current debt owed (usually includes car loans, credit cards, mortgages, liens, student loans, etc.) plus the purposed payment on a new house. In most instances you are required to stay within a very specific DTI (debt-to-income ratio). We must balance your current responsibilities and purposed new house payment against what you bring in each month for that calculation.

There are other things to consider as well. Often times, if ratios are tight, a high HOA and/or Condo fee can put a buyer out of range on a specific property.

Now, don't get me wrong. I enjoy trolling the open houses on a Sunday afternoon for fun like the next person. This is not what I am talking about. I am saying, don't drive by a home with a "For Sale" sign in the yard at 7pm on a Wednesday, call the agent's number on the sign demanding to see inside right then and there unless you KNOW you can afford the property. Can you call and ask questions, sure. But when you take it to the next level, needlessly inconveniencing the agent and owner, to view a property that you have no idea if you can afford is a bit inconsiderate. Imagine how you would feel!

The application process can be intimidating. I think this is why most people put this step in the process secondary. Avoiding it doesn't make it easier. It is actually smart for you to know up front what your buying power is so you can make the best educated decisions regarding your home purchase. This is so much better than guessing and wasting everyones time - including your own.

Don't put the cart before the horse!

Valerie Hall

Embrace Home Loans

NMLS #238553

10306 Eaton Place #101

Fairfax, VA 22030

vhall@embracehomeloans.com

703-309-2005