Getting Pre-Qualified BEFORE searching for a house

The purchasing a home can be an exciting experience. Finding new neighborhoods, driving around new parts of town, & meeting neighbors & getting the skinny on the pros/cons of the neighborhood can be fun. Even peeking into a vacant home (there are a lot of them nowadays!) or dare I say 'breaking' into one that's open can really make the Sunday search enjoyable. The biggest way to put a damper on all of that is to find a home that you are in love with only to discover that you either that you can't afford it, your loan program won't finance it or worse, you can't qualify for a loan at all! A common occurrence is potential home buyers searching online, driving around to look at homes, and even calling agents to inquire or even view a home without getting pre-qualified first. Just like with buying a car, any radio talk show will tell you that you need to figure out your buying power first before even stepping foot into a dealership and I'm here to tell you that purchasing a house is no different. Here are the top reasons why you need to get pre-qualified FIRST before looking at homes.

Know how much you qualify for!
Without knowing your price ceiling, you will more than likely begin looking at homes that are above your price point. Some people have champagne taste and beer money so you want to be sure you have a realistic expectation on what you can get in a home. With today's market you can definitely get more (size,aesthetics,better areas) that you could just 4 years ago.

Determine your type of financing
There are two basic types of loans available, conventional and FHA loans. With FHA loans there are numerous guidelines that a property must meet in order for a your lender to allow you to secure a loan for it. For single family homes it must pass an FHA appraisal and cannot have more than $5,000 in repairs. More recently, a condo is a much more difficult buy using an FHA loan with new requirements in place for the COMMUNITY that the condo is located in. If the community is not FHA approved, you won't be able to buy in that complex.

Maybe you can't qualify
If it comes to light that you cannot qualify for a loan, the earlier you discover this the better. If you have a set target date ( i.e. a lease that's up in a few months), you want to get pre-qualified early to ensure there are no items on your report that need to be removed, disputed, or accounts with balances that need to be paid down or settled. With issues like these, once you fix them, it takes time for your score to rebound. You don't want to find out at the last minute that you'll need 3-6 months to be able to qualify when you've been actively looking to move already and could have been fixing these items when you first decided to purchase.

You can contact me directly at rousereo@gmail.com for more tips and suggestions regarding this topic

Lease Purchase / Lease Option / Rent to Own Pitfalls

PITFALLS OF A LEASE PURCHASE
A lease purchase used to be a great way to secure a property when a buyer is unable to immediately qualify for a loan, but would have the ability to do so in 6-12 months. The buyer makes a non-refundable down payment that is deducted from the sales price when they purchase the home and leases the property for a length of time needed for them to improve their chances to qualify for a mortgage loan. The #1 problem that occurs is usually the buyer not having a competent loan officer to assess the length of time needed to qualify. Second problem is usually something happening to the buyer during the lease term (loss of job, decrease in income, late payment, score not increasing as expected, loan qualifications changing) that causes them not to be able to qualify at the end of the contract causing them to lose their down payment. Life style changes (job relocation, school re-zoning, divorce, neighborhood decline) that make the home not as desirable are common, causing the buyer to not want to purchase the property at the end of the term. Another problem is maintenance & cost of ownership whereas a home requiring multiple repairs or higher utilities that the buyer isn't used to which causes the buyer to rethink wanting to purchase that particular property.

PITFALLS OF A LEASE OPTION
Lease options were very popular when the real estate market was experiencing huge annual increases in value. The buyer leases a property and deposits 'option' money in order to have the right to purchase the property at the end of the lease term for a set price. The problem with lease options in this market is that the sales price agreed on is usually more than what it will be worth at the end of the agreement. Declining values hurt both sides in this scenario.

PITFALLS OF A RENT-TO-OWN
Rent-to-own homes have remained popular in any market due to the appearance that a buyer could eventually own a home without qualifying for a mortgage loan. The most common problem with these is that the potential buyer never has a legitimate contract in place to purchase the property nor are they required to put in any substantial funds to secure the property if the seller has a better offer to purchase the property outright. Any seller with a mortgage in place is not a good candidate to do a rent-to-own from. Period. Likewise, a seller who is delinquent on a mortgage is not a good candidate as they will likely foreclose while the buyer is under the assumption that the mortgage is being paid. A seller who owns a house outright is not a good candidate either (surprisingly) unless a legitimate contract is in place that determines the total paid up front, the specific payment terms, interest rate, length of payments, and the total paid for the property. Ideally, if a buyer can get added to the deed it is the ideal situation. Owner financing is the best option for buyers who can't qualify, but understand that if you do not have the adequate cash to put into the deal to make it make sense or a legitimate contract in place, you will end up getting burned.