It seems like the buyers who call me every day understand more and more that they need to get prequalified for a mortgage prior to getting started with the homebuying process. Most also understand that shopping for the most competitive rates and fees among different lenders is essential — but there is at least one other reason a good buyer’s agent should encourage clients to get prequalified with at least one additional lender (if not two).
Last month, I spent some time working with a first-time homebuyer who went online to a major national bank’s website to get prequalified for a mortgage. Within minutes, the online system spat out a prequalification letter saying he was preapproved for a $130,000 loan for a home purchase. Ready to go jump in the car and look at houses, right?
I talked to him further about what he does for a living and asked questions about how he is paid and whether his income is salaried (versus commission or overtime earnings). My buyer then went to another lender and spoke to an actual person this time. He called me with news that the prequalification letter “might get chopped down to the $110,000 range.”
After he officially heard back from the lender, he left me a voice mail that they had thrown out his overtime compensation and could not count his commission pay, and he was therefore maxed out at $90,000 for his new loan prequalification.
I have seen this story many times before, so I finally got him to call a trusted lender of mine. She emailed me to say, “He is maxed out at $80,000 due to student loans that are keeping his ratios too high.”
So in between the online prequalification by an important and well-known bank and two additional lenders, our showing schedule took a dramatic turn. I had to cancel everything we had lined up to see and change gears quickly, and what a difference 24 hours can make! We are talking about a 40 percent reduction in the maximum home loan he was initially (and incorrectly) prequalified for online to the amount that he know he is really qualified to receive!
Encourage buyers to take the time to shop around more when it comes to a mortgage — this isn’t just about rates and fees; your buyers need to know what loans they qualify for prior to house hunting. You can keep your buyer from experiencing massive disappointment and wasting a lot of time and money down the road by making sure you are helping them understand what homes they’re qualified to purchase!
Hank Bailey is an associate broker with Re/Max Legends and a Realtor for more than a decade who provides buyer’s agent representation and seller listing services related to residential real estate.