MYTHS ABOUT MORTGAGE PRE-APPROVAL

Many first-time home buyers have concerns about the mortgage pre-approval process.   It’s completely normal to be apprehensive about the pre-approval process if you haven’t gone through it before.  It may seem like having to make a trip to the dentist but actually involves no pain and only a small investment of your time.

Often times, this apprehension is caused by myths or preconceived notions buyers have in their minds about the pre-approval process.  Often times they hear these myths from friends and family that mean well but are misinformed.

Pre-approval is a very simple process that usually takes only 10-15 minutes via telephone or online application.   In some cases, such as with buyers that are self-employed or have multiple sources of income, the lender may have to see additional documentation such as tax returns, in order to calculate income.

Looking for a great mortgage lender for pre-approval?  Contact John Olson at First United Bank at (214) 563-0171.  He works evenings and weekends and can handle all of your mortgage needs! 

Here’s a list of the most common myths and misconceptions about getting pre-approved for a mortgage:

“Having a mortgage lender pull my credit will hurt my credit score.”

FALSE – According to Fair Isaac and Co, the company that designed the FICO® scoring model that lenders use, the score ignores inquiries made in the 30 days prior to scoring.  And regardless, even if this were true, getting pre-approved is inevitable at some point unless you’re paying cash or have another form of non-traditional financing arranged.

 “I don’t want to commit to a particular lender, I want to shop around for the best deal/rate on a mortgage.”

– Obtaining a pre-approval from a lender does not commit you to work with them- it only gives them an opportunity to earn your business if you choose to work with them after you find the right home.   A lender will not ask you to sign anything that commits you to use them for your loan at the time of pre-approval.  In fact, a buyer is not fully-committed to a particular lender until they sign the documents at closing (but you certainly want to have your lender picked well before the closing date).  In some cases, lenders may ask that you pay their cost of the credit report, which is normally less than $20.  If a lender ever asks for a fee of more than $20 for a pre-approval, my advice would be to run as fast as you can.

 “Having multiple mortgage lenders pull my credit will hurt my score.”

FALSE – This is perhaps the most consistently circulated false myth I hear from home buyers.  Often, lenders will perpetuate this myth- either to instill fear in buyers so they won’t shop other lenders or because they simply don’t realize that it’s false.

Fair Isaac and Company, the company that designed the FICO® credit scoring model, specifically states on their website that mortgage inquiries are treated differently than other types of credit inquiries.

More specifically:

  • The FICO score ignores mortgage inquiries made within the last 30 days of scoring.
  • If you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping.
  • All mortgage credit inquiries made within either a 14 day period for the old scoring model or a 45 day period for the new scoring model are only counted as one credit inquiry.  In my experience, most lenders use the newer scoring model.

 “I already know my credit scores are good because I have a “Free” credit report service or credit monitoring service that provides my scores.”

FALSE – The scores that most “free credit report” and credit monitoring services use are not the same scores used by lenders to qualify applicants.  The score model that lenders typically use is called the FICO® score.   Unless the credit report or credit monitoring service specifically states that the scores they provide are FICO® scores, the score they’re showing you is essentially worthless.  I’ve seen instances where this score was 100+ points off in either direction from the FICO® score.

How do these companies get away with it?  Clever marketing.  The definition of “credit score” is rather subjective, meaning any company can create their own computer-generated credit scoring model and market it as a “credit score”.  Unfortunately that doesn’t mean it’s the same score as the one that lenders  use, the FICO® score.

 “I already know my credit is good so that means I will be approved for a loan.”

FALSE – Simply having a good credit score, even a perfect credit score, is no guarantee of loan approval.  In addition to credit score, lenders look at several other factors, such as:

  • Income, including the borrower’s debt-to-income ratio.
  • Credit depth – the quantity and quality of credit.  Most lenders require a borrower to have at least three lines of credit that have been open and active for at least 12 months.
  • Down payment and reserves – the amount of money a buyer has to use for down payment plus any reserves that will be left over at closing.

“I don’t want to use the mortgage lender referred to me by my Realtor because I’m afraid they’re getting paid a kickback.”

FALSE – Not only is this unethical, it’s also ILLEGAL-a violation of the Real Estate Settlement Procedures Act.  There are probably instances where this does occur but I can promise you that I don’t receive any kickback from the lenders I refer my clients to for pre-approval.  Realtors typically have one or more lenders that have a solid track record of providing good service and competitive rates to their clients.  Think about it for a minute…If you were a Realtor®, would you risk referring a client to a lender that took advantage of your clients?  Of course not!  This would be akin to shooting  yourself in the foot.    And as a former loan officer, I can promise you that I hold my lenders to a higher standard of service than most.

“It’s easier to find a house first and then worry about getting a mortgage afterwards.”

FALSE…for a number of reasons:

-The mortgage pre-approval process is more than just about getting a pre-approval letter-it allows the buyer to ask the lender some very important questions about expected down payment, monthly payment, interest rate, expected closing date and the loan process in general.  Without at least having a good estimate of these variables in advance of making an offer, a buyer runs the risk of committing to purchase a home that they either cannot afford or are unwilling to

-In most cases, home sellers and their agents will require a pre-approval letter before they will even negotiate or even respond to a written purchase offer.  Think about it: If the seller doesn’t know if the buyer qualifies for a loan, why would they risk taking their house off the market and possibly miss out on a buyer that can prove they are qualified?

-Your time is important.  So is mine.   I understand that the process of looking at homes is the most fun and exciting part of the home buying process for most buyers.  I enjoy it as well.  It’s definitely more fun than talking to a lender.

However, looking for a home is a process that may take days, weeks or even months in some cases.  It requires a significant investment of time and money on the part of the buyer and their agent, not to mention the sellers and their agents that agree to show their homes.  In contrast, the mortgage pre-approval process typically takes only a few minutes.  Because of this simple fact, it makes absolutely no sense to begin viewing homes without first getting pre-approved.

Again, your time is valuable and so is mine.  As a Realtor, I am 100% self-employed.  That means all the time and money I spend setting appointments, showing homes, driving to and from appointments, etc., comes out of my own pocket.  I do not get paid a salary or an hourly rate for my time or expenses; they are paid from the commissions I earn.   That doesn’t mean that I make my clients promise to buy a home – I understand in some cases even qualified buyers may not end up buying and that’s a risk I’m willing to take.  And if that happens, the client will owe me nothing.

Because the time and money spent showing homes to buyers is significant, most Realtors (including myself) will only work with serious buyers that will invest 10-15 minutes of their time to get pre-approved for a mortgage.  If you think about it, that’s a pretty fair and reasonable request that makes sense for everyone involved.

Looking for a great mortgage lender for pre-approval?  Contact John Olson at First United Bank at (214) 563-0171.  He works evenings and weekends and can handle all of your mortgage needs! 

And if you are looking to buy or sell a home in the DFW area, please contact me today at (972) 978-3553 or complete the contact form below for a prompt response.

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