How the #@¢%?! do I know my budget?

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Pre-underwriting is a fun little secret that could make your homebuying experience easier

By Anita Newhouse

The idea of buying a home can be very exciting. I’ve spent many a night considering all the possibilities:

“Will there be a fenced yard and a doggy door for my beagle?”

“Will my new kitchen have one of those fancy pot-filler faucets over the stove so I don’t have to carry heavy pots of water back and forth from the sink?”

“Will Channing Tatum live next door?”

The reality of home buying can be a lot less enticing, though. Traditionally, at its best, it’s a whole marathon filled with jargon and paperwork (with an awesome reward at the end: your home). At its worst, it’s a frustrating mystery that leaves you feeling confused and even helpless.

That’s why so many banks try to make the process of buying a home sound fun, fast, and easy. You’ve seen all their attempts to lure you in, I’m sure—you’re scrolling the internet or watching a show and suddenly the message is blasted into your eyeballs in all caps, bright colors, and tons of exclamation points:

GET PRE-APPROVED!

YOU’VE ALREADY QUALIFIED!!

HERE IS A HOUSE, WE’LL FIGURE OUT HOW YOU’LL PAY FOR IT LATER, JUST SIGN ON THE DOTTED LINE AND DON’T WORRY ABOUT IT!!!

It’s very tempting! After all, the sooner you’re approved for a loan, the sooner you can start shopping and making offers. But, as anyone who’s made the mistake of grabbing Taco Bell when starving and running late for a long flight knows, easy and fast isn’t always the best approach. (Why’d they discontinue the seven-layer burrito, tho?)

Those pre-approved and pre-qualifying loans aren’t promises. They’re guesstimates. They’re numbers based on the most basic information—your credit, your income, and your downpayment—and what you’re “pre-approved” for can change the further you get into the lending process because it’s all based on estimates. Eventually, the bank will need more info like your federal tax returns, your W-2s, pay stubs, and bank statements … and that information could change the loan offer.

UGH!

Imagine taking the pre-approved loan number and finding a home you love—you’ve started mentally decorating it, you’ve started planning out what you’ll say to Channing when you bump into him while walking your beagle— and then, when it comes time to put in an offer, the bank approves you for tens of thousands of dollars less than planned. Another buyer is there with cash in hand and poof! the pot-filler, the doggy door, and Channing vanish into thin air.

The good news is, that heartbreak is avoidable.

Even after several hours of Googling “How to buy a house” and “Where does Channing Tatum live,” pre-underwriting is a phrase I never heard until a friend recently mentioned it during a conversation about her new house. Admittedly, the second she said it, I started to fall asleep. I assumed it was just one more buzzword created by a bank’s marketing team in an effort to get me in their clutches.

Oh, how wrong I was! Pre-underwriting, it turns out, is more like pre-FUNderwriting! (LOL, not sorry.) It’s the only way you’ll know exactly how much money a lender will give you, which gives you more power and security when it comes time to make an offer on a house. The underwriter will give you a promise. On paper. (Well, maybe electronically, but it’ll be legit.)

The pre-underwriting process gets all the tedious, seemingly overwhelming financial paperwork done early on in the process—a loan officer will tell you what paperwork you’ll need, but the list will likely include federal tax returns, W-2s, pay stubs, and bank statements. It sounds scary, I know, but it can actually be quite quick. Flyhomes Mortgage, for example, has advisors that will walk you through everything and you could have results in less than 24 hours.

Then, barring any unfortunate, very large financial changes—like, don’t go to Vegas and gamble half your savings away thinking you’ve got the loan in the bag, you know?—there will be no surprises when it comes time to make an offer. 

As I mention in this post about mortgages and the myth of the 20% downpayment, the biggest mistake new buyers, heck, even season buyers can make is not understanding their options. It’s OK to not know things! You don’t walk into first grade knowing how to do math, you take a seat and let the teacher teach you. Buying a home is kinda sorta like deciding to go back to first grade. (Without the Scholastic Book Fairs, sadly.) You have to make time to sit down and learn things in this new, unexplored world. So talk to a lender, ask about your options. Chat with a few friends who’ve bought a house in the past couple of years and don’t fall asleep when they start throwing out unfamiliar terms. Their knowledge could be just what you need when it comes to getting in next door to Mr. Tatum.

More from Anita Newhouse is on the way!

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