THE HOME BUYING & SELLING PROCESS - PREQUALIFYING THE BUYER

Searching for a home can be very exciting. Normally the first thing you think of is how big. It’s easy to imagine yourself in a new home with all the ideal features you’ve longed for.

Eventually you realize that the limiting factor in finding the home of your dreams is money. It’s fun to dream big, but eventually reality brings you back to Earth. You must work within your financial constraints. You may be one of few that actually have enough cash to pay without financing. However if you are in the majority, you will have to get financing from a lending institution.

In either case, you will have to show proof that you can afford any home that you make an offer on. It is standard practice now for Sellers to require that you provide proof of funding or a loan prequalification before you even get to tour the home. Agents also request this before they agree to represent you. The reason is simple. No one wants to waste time (even you) if you cannot close on a home.

Prequalifying when paying cash means providing bank statements with balances equal to or above the sales price plus closing costs. In most cases, the balance must have been maintained for at least a few months to show that there are no other obligations. Even if you have a rich uncle that is giving you the money as a gift, your lender will have requirements to make sure the money isn’t really another loan.

Mortgage Lenders and Brokers are two different service providers. Mortgage Brokers can help you find a Lender with the best loan for you. Mortgage Lenders are the banks and institutions that will actually loan you the money. They can quickly provide you a loan prequalification based on a credit report and other information you provide. Brokers can also get a prequalification letter for you from selected Lenders, but the actual prequalification letter will come from your Lender, not your Broker.

One of the things the Lender will require is proof of funds for your down payment. This will affect the loan amount you prequalify for. They will also have rules about where that money comes from. Withdrawals from an IRS qualified plan (like an IRA or 401k) and gifted money may have limits that the Lender can explain.

Prequalification is not the same as preapproval yet some Lenders use these terms interchangeably. A Lender will likely require more details from you (such as record of your work history, your income and expenses, etc.) for preapproval. Neither of these are loan approvals but both will help to process the loan quicker. The final loan approval will still take the Lender some time to process. It is a critical part of title transfer and will likely have an associated Deed of Trust (in Texas).

There are many options for loans available that you may qualify for. In addition to a conventional (standard) loan, you may be eligible for a special loan like FHA, VA, or any of the Texas programs such as My First Texas Home or Homes for Heroes. Many of these can help you qualify for much more than a conventional loan. Brokers are especially qualified to assist you with these options.

Prequalification is a good way for you to know how much home you can afford. With your prequalification, you will feel much more confident in your home search.