Let’s face it, when it comes to real estate and buying a house, there are a lot of old myths out there. There is always the experienced grandparent telling you about how it was back in the 1970’s, the last time they bought a house; or that know-it-all brother-in-law who has never bought a house, but seems to have heard all the myths, as well, and brings on the fear of it all. Well, rest assure, I am going to do my best to debunk those myths into something more understandable, because that is where the fear comes from, the unknown and being scammed into something that is going to be a burden!
So, the biggest myth I hear when I chat with buyers is that they do not want to get preapproved because it will hurt their credit. Understandable, but false. Getting preapproved is only a soft hit on your credit and will not affect the score at all. This is also a great question to ask a lender to discuss while in the process of getting preapproved, because again, even just talking with a mortgage lender does not hurt your credit either. They are not going to be pushy. They will tell you all the options and let you know what is going to work for you in purchasing a home. There are a lot of other options out there now then the original “must have 20% down, conventional loan,” type many are thinking it is going to be.
After reassuring clients of the credit score myth, many will say that there will be plenty of time for preapprovals when they find that perfect house. Wishful thinking. Especially in today’s fast-moving market, there is not time to waste. In fact, many sellers today will not even let you into their homes to view unless that buyer is prequalified from a lender! Serious buyers will be comfortable and ready to make an offer on that dream house the day they go look at it. This is because there is nothing worse than falling in love with that perfect home, and either, one, someone beat you to the punch, or two, you realized that you could not qualify for that amount or loan type, etc., etc., and have to look elsewhere. It really wrecks the homebuyer experience.
Alright, so after the client gets preapproved, they find that dream house, they confidently put in an offer with that preapproval letter, and it is accepted! Wahoo! Now for the real fun to begin, right? Well, it usually takes 30-45 days for the lender to complete everything on their end. In the meantime, there is some other things clients should be aware of, like ordering inspections and what the appraisal is going to really mean to them, other than what the house’s market value is. Many believe that the purchase price will be the loan amount. That is true, but only if the appraisal says so! If the appraisal comes in and says that house is below value of what the agreed upon price was in the offer, then, uh-oh! Now what? Because the lender cannot give you more money in the loan than what it is actually worth, there becomes a serious problem. Lenders cannot give you the full agreed upon amount if the appraisal came back low because then it you decide you do not want to make your payment and go into foreclosure; the house is not worth that amount the bank needs to sell it for, and they are out money. So, usually there are three options here per contract: buyer can pay the difference out of cash, sellers come down on price, or everyone walks away. You can probably imagine which one works out best for the buyer! But, that is not always the case, so this is why, as a buyer, you do not want to offer a bunch over asking in order to win the house. If you cannot pay the difference if the house does not appraise for agreed purchase amount (which some buyers can and they will put what is called an appraisal gap clause in), then it is smart to make a reasonable offer with what you can, and have a trusted real estate agent on your side to help, as well!
Any other questions about common myths! Let me know