Mortgage and Real Estate Out of Order: No sense makes

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blog-author-jeffreypinkerton5

Putting the cart before the horse, getting ahead of yourself, whatever you want to call it, going through the mortgage and real estate process in the wrong order can be confusing, frustrating, disappointing, and it could cost you hours of time and hundreds or even thousands of dollars.

Unfortunately, a lot of  times, the order of activities goes something like this: 1. Become interested in purchasing a home; 2. Go online and do some research; 3.  Find a few houses that seem to be a good fit; 4.  Contact a Real Estate agent for more information; 5.  Contact a mortgage provider to get details on available loan programs, interest rates, monthly payment scenarios, etc.  Some extraordinarily out-of-order buyers may even squeeze in an additional step between numbers four and five: 4b. Go and view homes that seem to be a good fit.

In the scenario above, the cart is certainly before the horse (finding the house before finding the mortgage).  In fact, not only is the cart before the horse, but the potential buyer has put the cart (the house) before the horse (mortgage) not even knowing yet if they can even ride a horse (qualify for a mortgage).  In other words, they have found the house and are hoping they can make the mortgage fit.  These simple steps, when done out of order, make it difficult to move down in price-range without being terribly frustrated.

I tell all my potential clients, if you are looking to purchase a home in the next 12 months, you need to talk to a mortgage professional.  It is never too early to review your credit, your loan qualifications and your target price range.  If you start looking at homes that are out of your price-range, you will only be disappointed later (I can almost guarantee you will like more expensive homes MORE than less expensive homes.  You may not like the mortgage payment, hence the frustration).  

Here are a few “Well, I haven’t called a mortgage person yet, because . . .” myths debunked:

1.  “I don’t want anyone to pull my credit because it will hurt my credit score.”

The credit score model does lower your score based on inquiries, but only if you have an “excessive number of inquiries” within the past 12 months.  An excessive number of inquiries is a sign that a consumer may be desperate for credit, or may be applying for multiple credit accounts at the same time — both risks and red flags (hence the lowering of the credit score).  One inquiry on your credit report six to twelve months before you are going to purchase a home gives your mortgage professional the information he or she needs to help give you advice on ways that could potentially help you increase your credit score by 50 to 100 points.  And with your available interest rate being tied directly to your credit score, the difference in 20 points on your credit score, could mean the difference between 5.0% and 5.5% = about $75 per month on a $250,000 mortgage = almost a $1,000 per year.

2.  “I know I am fine.  The last time I checked my credit is was like 700-something.”

I hear this statement made a few times each month, and the reality is that it’s true about half of the time.   Your credit score is generated each time your credit report is pulled.  And because the most recent account information (account balances, late payments, etc) has the greatest impact on your score, if you haven’t seen your credit report in the last 60-90 days, your credit score from a few of months ago is not accurate.  Also, because mortgage rates and available loan programs vary for credit scores of 620, 640, 660, 680, 700, 720 and 740, in order to give accurate information for your options, even if your score really is 700-something, your mortgage provider actually needs to know if your score is 719 or 720, or 739 or 740.

3.  “I am just thinking about buying . . . not really ready to take the next step.”

Some people say this because they are concerned that the pre-qualification process (reviewing your mortgage options) takes too much time or that it costs something.  Some have even told me that they didn’t want to “waste” someone’s time so early in the preliminary stages of only “thinking about” possibly purchasing a home.  Here is my response to those concerns:  the pre-qualification process should take 20-30 minutes over the phone; it shouldn’t cost you anything; and talking with a prospective new client is actually the exact OPPOSITE of a waste of time.  It’s one of the most productive things I could possibly hope to do during the day!

So if you are thinking about purchasing a home (yes, even just thinking about it) save yourself some frustration and go through the process in the correct order.  Getting the details of your mortgage options first — and how to improve your ability to get a mortgage and a better interest rate on your mortgage — will allow you to take the next steps with confidence and peace of mind (searching for homes in the right price-range).  Starting the process in the wrong order could very well have you falling in love with a house you can’t purchase (a cart you can’t horse? a horse you can’t cart??  That’s enough of that analogy.  You understand, right?).

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