Here we go again. Every Spring, as the first batch of contracts are signed, I get the calls from either Agents or Borrowers who now under contract, are finding out that they either don't qualify for the mortgage they thought they were going to get, or who are not at all happy with the monthly payment that was just put in front of them.
Admittedly, the Pre-Approval process is flawed. Most people these days start off on the internet. There are mortgage calculators on basically every Real Estate site on the internet. You can research lenders, programs, mortgage terms, all without leaving your cubicle. When your Realtor says you need a pre-approval letter, most people pick up the phone and call either the recommended Loan Officer, or their local bank and ask for a pre-approval for the maximum they can afford. The Loan Officer in turn, generally asks about income, assets, runs a credit report and sends out a very generic letter to a specific purchase price or loan amount. But here's the flaw. Most Loan Officer's never ask how much you are comfortable with on a monthly basis or, if you have looked at your own personal budget to come up with a number that fits. And what happens? You sign that contract for $300,000.00 only to find out the monthly payment eats into the $500 per month you had budgeted for your next vacation or your kid's college fund.
Why are we so afraid to talk about budgets? As a Loan Officer, we are guiding people through the single biggest purchase of their lives. As such, it's the largest monthly liability that they are going to carry. Why are so many mortgage professionals not broaching this with their customers?
The first question I ask a potential borrower when we speak is what they are comfortable with in terms of monthly payment. If they don't know, I ask them to think about that before we start talking about purchase price. It's easy to back into a purchase price range once you have that number and the amount of money being put towards down payment. Here's a dirty little secret. Realtor's don't want to sell you more property than you can afford. Especially considering the state so many of our past clients are in post bubble burst. A good Realtor does not care if they sell you a $200K home instead of a $250K home. What they do care about is getting a referral from you after close. They will not be getting referrals for very long if you are not able to make the monthly payment on the home that you have to live in for the next five years.
Just as important as monthly payment is knowing for sure that you meet current mortgage guidelines. It has never been harder for me to just say to someone, 'Congratulations, you are Pre-approved'. There are just too many things that go into the process now, and too many guidelines to follow. It has never been more important to get a credit check, have a loan officer look at your paystubs, W2's and assets, and even run the file through automated underwriting to make sure the loan will be approved. There are so many things now that can negatively affect the quoted interest rate, that it's imperative to get that out of the way up front. While your best friend may have just locked in 5.00% on a 30 Year Fixed, your particular situation could easily push that rate to 5.500% and change your monthly payment on a $300K loan by as much as $90 per month, before you figure in that your mortgage insurance just got more expensive as well.
So, if you haven't spoken to a loan officer, call one. If you have, but you don't feel like they went through your finances, or talked to you about your comfort level or budget, don't call anyone, call me!
Joe Burke
Your Chicago Mortgage Guy
773-742-6707
joe@yourchicagomortgageguy.com