Q&A with John and Lane
A monthly conversation with John Rebchook, Editor of Denver Real Estate Watch, and Lane Hornung, President of 8z Real Estate.
If you are not going to pay cash for a house, it has never been more important to be pre-approved for a loan.
That is especially true if you are shopping for your slice of the American Dream in a hot housing market such as along the Front Range or in Northern California.
If you have never bought a home before, you may not realize that before you walk through the front door of a home with a For Sale sign in the lawn, you should have a letter from a lender saying you can afford the mortgage required to buy the home.
The importance of being pre-approved for a mortgage is the topic of this month’s question and answer session between Lane Hornung, CEO of 8z Real Estate and John Rebchook, of Denver Real Estate Watch.
This Q&A is part of 8z’s Real Estate 101 series.
John: Lane, just how important is it to be pre-approved for a mortgage before you go house hunting in today’s market?
Lane: It’s essential. If you are not paying cash in some neighborhoods, you already are at a disadvantage. You just have to accept that.
But if you need financing, you must be pre-approved by a lender, so you can make as strong an offer as possible.
John: What does being pre-approved involve?
Lane: It might be a subtle distinction, but you want to be pre-approved, not just be pre-qualified. With a pre-approval, the lender has already begun checking your income, work history and your credit report, while a pre-approval is typically more of a verbal agreement. In this market, a pre-qualified is kind of anemic.
John: What happens if you are not pre-approved?
Lane: If you are competing for a home in a hot neighborhood, you will lose out. You will learn the hard way.
If there are 10 offers on the home, you can bet most of them are pre-approved. You don’t want to be trying to gather your information in the heat of the battle.
8zers listing homes typically set a date for all offers to be submitted. But a lot of agents at other companies will simply accept the first offer they like that comes in. If all of your ducks aren’t lined up and you are scrambling to get your financing in place, it will be an easy decision for the homeowner and listing broker to check you off the list.
John: In a hot market, is there anything a consumer might need to prepare for when it comes to financing?
Lane: Increasingly, if a home doesn’t appraise to the full amount, a lot of buyers are willing to pay the difference.
With that in mind, you might want to plan for being able to bring additional cash to the closing table.
John: If you don’t have a relationship with a lender, can your broker help you find one?
Lane: Brokers at 8z, and most good agents, have completed a lot of transactions with lenders they know, who will close on time. That is really important in today’s market.
I won’t name names, but there are some big lenders that don’t do a good job of closing.
In the old days, it didn’t matter if closings were delayed by a few days. But this market is moving so fast and is so competitive, there are literally people waiting in line to buy homes. That means, if you can’t close on time, you are in danger of losing your earnest money and the home.
John: Is it important to have a local lender?
Lane: It can be helpful. A lot of listing brokers will call the lender directly, to make sure the buyer can close. It’s nice to have a lender pick up the phone who understands the local market and understands there is a certain urgency in closing on time.
Now, I do think people should get a few bids, to make sure they are getting a good rate. But saving $14 dollars by using an online lender, for example, won’t be worth it if you can’t close on schedule.