Debunking Pre-Approval Myths: What You Need to Know
For many first-time home buyers, the mortgage pre-approval process can seem intimidating. It’s completely normal to feel a bit apprehensive if you’ve never been through it before—much like how you might feel about a visit to the dentist. The good news is that the pre-approval process is usually straightforward, involving only a brief investment of your time and no discomfort.
Unfortunately, many of these anxieties are fueled by myths and misconceptions about what pre-approval actually involves. These myths often come from well-meaning friends and family who might not have accurate information. To help you navigate this essential step in buying a home, let’s debunk some of the most common pre-approval myths and provide you with the facts you need to make an informed decision.
1. “Having a mortgage lender pull my credit will hurt my credit score.”
FALSE – One of the most common misconceptions is that having your credit pulled by a mortgage lender will negatively impact your credit score. According to Fair Isaac and Co., the creators of the FICO® scoring model, credit inquiries made in the 30 days prior to scoring are not counted against your score. Moreover, even if this were true, a credit check is an unavoidable part of the home-buying process unless you’re paying cash or using alternative financing methods.
When you get pre-approved, the lender performs a soft inquiry, which does not impact your credit score. If you’re concerned about your credit score, remember that pre-approval is a necessary step to determine how much you can afford to borrow and should not be avoided due to fears about credit impact.
2. “I don’t want to commit to a particular lender; I want to shop around for the best deal/rate on a mortgage.”
FALSE – Obtaining pre-approval from a lender does not obligate you to work with them. The pre-approval process simply gives you an estimate of what you can afford and allows the lender the opportunity to earn your business. You’re not committed to any lender until you sign the final documents at closing. In some cases, lenders might request a small fee for the credit report, typically less than $20. If any lender asks for more than this, it’s wise to consider other options.
Shopping around is a smart strategy. You can obtain pre-approval from multiple lenders to compare rates and terms. Just be sure to do this within a 14 to 45-day period to ensure that all inquiries are treated as a single credit check, according to FICO® scoring models.
3. “I already know my credit scores are good because I have a ‘free’ credit report service or credit monitoring service that provides my scores.”
FALSE – Many free credit report services and credit monitoring tools provide scores that are not the same as the FICO® scores used by lenders. The scores provided by these services can vary significantly from the scores lenders use to assess your mortgage application. The FICO® score is the standard used in most lending decisions, and scores from free services might be inaccurate.
Understanding this discrepancy is crucial for accurate financial planning. If you rely solely on a free service’s score, you might be surprised by a different score when applying for a mortgage. Always check that your credit monitoring service provides FICO® scores, or consult with your lender for the most accurate information.
4. “I already know my credit is good, so that means I will be approved for a loan.”
FALSE – Having a high credit score is beneficial, but it does not guarantee loan approval. Lenders consider several factors beyond your credit score, including your income, debt-to-income ratio, credit history, and the amount of your down payment.
For example, lenders will look at your income to ensure it’s sufficient to cover your mortgage payments and other debts. They’ll also assess your credit history to determine how well you’ve managed credit in the past. A high credit score is just one piece of the puzzle in securing a mortgage.
5. “I don’t want to use the mortgage lender referred to me by my Realtor because I’m afraid they’re getting paid a kickback.”
FALSE – Concerns about kickbacks are understandable but largely misplaced. The Real Estate Settlement Procedures Act (RESPA) makes it illegal for realtors to receive kickbacks or referral fees from lenders. Reputable realtors refer clients to lenders who offer good service and competitive rates because they want the best for their clients.
In reality, realtors often have trusted relationships with lenders and recommend them based on their track record of providing excellent service. I can assure you that any lender I refer to my clients is held to a high standard of service and integrity.
6. “I shouldn’t have to get a pre-approval to have a realtor show me a home.”
NOT NECESSARILY FALSE – While it’s not strictly false, this myth reflects a misunderstanding of the home-buying process. A reputable realtor will often require pre-approval or proof of funds before showing you homes. This is not about putting up barriers; it’s about ensuring that both your time and the seller’s time are used efficiently.
Pre-approval demonstrates that you are a serious buyer and helps set realistic expectations. It only takes a few minutes to obtain pre-approval from a lender, and a serious buyer should have no issue with this. Realtors who show homes without pre-approval might be inexperienced or desperate, which could affect their handling of the entire transaction. By obtaining pre-approval first, you show that you’re committed and ready to proceed, making the home-buying process smoother for everyone involved.
7. “It’s easier to find a house first and then worry about getting a mortgage afterward.”
FALSE – It might seem more exciting to start looking at homes right away, but getting pre-approved before house hunting is crucial for several reasons:
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Understanding Your Budget: Pre-approval provides a clear picture of what you can afford, allowing you to focus on homes within your price range. This prevents you from falling in love with a property that is beyond your financial reach.
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Seller’s Requirements: Many sellers require a pre-approval letter before they will consider your offer. This demonstrates that you are a serious buyer and can afford the home, making your offer more attractive.
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Efficiency: The home-buying process can be time-consuming. By getting pre-approved first, you streamline the process and avoid wasting time on homes that you can’t afford. This approach ensures that you and your realtor use your time effectively.
As a realtor, my time and resources are invested in finding the right home for you. Pre-approval is a small but significant step that makes the home-buying process smoother and more efficient for everyone involved.
Conclusion
Understanding the pre-approval process is crucial for a successful home-buying experience. By debunking these common myths, you can approach the process with confidence and clarity. Pre-approval is a straightforward step that provides numerous benefits, including a clear budget, access to better deals, and a more efficient home-buying process.
If you’re ready to start your home-buying journey or need guidance on the pre-approval process, contact Leah Rolen with Keller Williams at 469-744-5309. Let’s work together to make your home-buying experience as smooth and successful as possible!
