QUESTION

Hello Herman, I am totally insulted that my agent won’t show me any more homes until I get pre-approved for a loan. We’ve gone out a few times but she keeps nagging me. I have a good job and some money saved up. It’s not any of her business yet.  Shouldn’t we find our house first and then work on a loan? -Abbie

ANSWER

Abbie, simmer down! No need to be insulted. Everyone is being very cautious nowadays.

Years ago, a buyer could have a dismal credit score, no steady income, no downpayment and still get a loan. Those predatory subprime loan products that Wall Street  created really ruined it for the rest of us. In their effort to chase the almighty dollar, they peddled these timebomb loans to people who were so desperate to own a slice of the American Dream, but frankly were nowhere near qualified to even rent! The lending market imploded when all these  loans defaulted, and drove the globe into the worst recession since the Great Depression.

Gotta love those greedy banks, who,  mind you,  got bailed out, and now are roping in record profits! But I digress.

Every buyer is now paying the price. Before, the underwriting process was too lax. But now, the pendulum has swung way to the opposite side. Buyers are so scrutinized that even people who are traditionally very qualified are finding it hard to obtain financing. I had a doctor who had 5 homes and made a healthy 7 digit income. Even he got a hard time from his lender who claimed his debt to income ratio was too high for him to buy.

So Abbie, your real estate agent is not trying to snub you. She is in fact doing the right thing. Getting your pre-approved for a loan from the get-go will protect her and you in the long run. The worse thing in the world for a buyer is to shop every weekend for 6 long months, find your dream home, get into contract, do your loan, only to find that you can’t afford it! You’ve been shopping in the wrong price bracket for half a year!

There goes all that time down the drain. And you have to start all over again.

On the flip side, a real estate agent does not want to spend every weekend with someone who is ultimately not going to be able to buy.

By getting preapproved from the beginning, you will know your future monthly payments, price parameter and what you can realistically afford. Speaking from personal experience as a real estate professional, I get a lot of first time buyers who come to me saying they are fine financially, but in reality they have no idea what it entails to buy a house. Someone who tells me they pay $2500/mo for their apartment rent and ergo can afford a condo payment that is $2500/mo clearly has not taken into account property taxes, insurance, monthly Home Owners Association dues, interest, etc.

Do your realtor and yourself a favor and just crunch your numbers with a loan officer before you look at any more homes (which you may or may not be able to afford!).

Maybe the reason you are insulted is because you feel they will judge you when reviewing your financial standing. They are there to help you. it can be painful assessing your fiscal profile, but it’s not a sentencing. Most importantly, once you get your preapproval done, when you find that dream home, you can strike immediately. And a seller will always give preference to a preapproved  buyer over one who is not.  Feel better now?

Good luck Abbie!