We all know my friend Joe Lunch Pale.
Joe wants to spend the next three weekends looking at houses. Maybe write a low offer here and there just to see what happens. And according to Joe, financing won’t be a problem.
According to Joe, he has a 950 credit score, makes great money, has almost no debt, and has more cash in the bank than Scrooge McDuck. Don’t worry about Joe… Joe is ready to go.Or is he?
There is one basic rule every real estate agent should live by:
No butts in car seats until you see a pre-approval.
No ifs. No ands. And definitely no butts in seats.
Because when it comes to mortgages, I have another rule:
Show me. Don’t tell me.
That fictional 950 credit score? Turns out it’s 620.
Joe also forgot to mention that he generously co-signed on a couple of car loans for his nieces and nephews. Unfortunately, the mortgage underwriter doesn’t care who is actually making those payments unless we can properly document it.
And that shiny new truck Joe just bought? The new payment changed his debt-to-income ratio, while all those credit inquiries and the new account didn’t exactly help his credit profile… hence why Joe’s score is now 620.
Then we discover Joe recently left his salaried job and went hourly.
“But I’m making more money!”
Maybe. The problem isn’t necessarily Joe’s hourly rate. It’s establishing how many hours he can reasonably be expected to work. Is it consistently 40 hours? Or 36? Or 32? And what about overtime?
We may need a documented history before we can use it as qualifying income.
Welcome to Hourly Jail, Joe.
Then Joe tells me not to worry about the down payment because he has $100,000 in his 401(k). Great! Except having $100,000 in a retirement account doesn’t necessarily mean Joe has $100,000 available for a home purchase. His plan may restrict loans or withdrawals, and we need to know exactly how much is accessible.
Suddenly, Joe’s “slam-dunk” mortgage isn’t quite the slam dunk everyone thought it was.
And That’s the Real Problem…
Maybe Joe qualifies for $650,000.
Maybe he qualifies for $400,000.
Maybe, at the moment, Joe doesn’t qualify for anything.
But wouldn’t you rather know that before spending four weekends driving him around Atlanta?
Worse yet, imagine showing Joe $650,000 homes for a month only to discover that his actual purchasing power is $400,000. Good luck getting Joe excited about the $400,000 house after he’s fallen in love with the $650,000 one.
That’s why getting pre-approved isn’t simply about the mortgage.
It’s about setting expectations before emotions get involved.
It protects the buyer. It protects the agent’s time. It establishes a realistic price range. And when the right house comes along, everyone is prepared to move.
No butts in seats until you have a pre-approval in your hand…
No ifs. No ands. And absolutely… No butts.
DC Aiken is Senior Vice President of Lending for CrossCountry Mortgage, NMLS # 658790. For more insights, you can subscribe to his newsletter at dcaiken.com.
The opinions expressed within this article may not reflect the opinions or views of CrossCountry Mortgage, LLC or its affiliates.