Depending on your situation, the type of financing you qualify for can determine the type of home you can purchase. Now on a scale of easiest to most hoops to jump through, this is my opinion of loan types. Paying cash is always going to be the easiest way to buy a home. Again this is in terms of hoops you have to jump through. Next in line is the Conventional loan. There are restrictions, and you'll need to bring more money as a down payment. But other than an appraisal there are usually fewer restrictions on the type of home you can buy and the number of hoops you have to jump through to get the approval. Next in line would be the FHA and VA loans. Both are government backed loans and require a more strict appraisal. While you need less money down to buy a home, the appraisal is more thorough and the seller could be required to make repairs so that you can buy the home. If the seller is unwilling to do that, you may need to find a different home. Finally, there are a group of loans such as USDA, Rural Development, NIFA and so forth. These loans will require more work on your part.
My advice to you as a buyer is know what type of loan you qualify for so that you know what type of home you can purchase. Even if you're really handy, and painting a house doesn't bother you, or you know you can fix windows with no problem, your lender may not allow you to fix the issues in order to buy the home. It's important to know your loan and know what your lender will and won't allow. If you have an FHA loan and you've fallen in love with a home that needs to be painted, you may need to rethink your home or your loan.
Why is the pre-qualification so important? Let me set this up from a seller's view. You've received an offer on your home. It has composite siding and original windows. The home's foundation has settled slightly and there are some minor cracks. The home was only built 15 years ago, but the shingles are showing their age. You receive an offer for full price with a 45 day closing. But the buyer has not pre-qualified with a lender yet. The buyer's agent has assured you that the buyer will qualify for a loan and definitely has good debt to income ratio. So you go ahead and accept the offer. The buyer heads to the lender and gets the first step done - the pre-qualification. You receive a copy of it as proof they are in fact able to buy the home. They've been pre-qualified for an FHA loan.
The seller now has to consider that they may need to paint their home, seal all the windows, seal the foundation cracks, and might have to replace the roof. Suddenly that full price offer is reducing their net by $10,000 to $15,000 because you have an FHA loan instead of a Conventional loan. Can the seller back out? Possibly. Their good agent will do everything possible to keep this offer moving forward. But, it may mean you need to offer more than full price to offset the cost of all the repairs. Are you prepared to do that? Will the home appraise for the higher price? The deal could fall through because you didn't have your pre-qualification done ahead of time.
The seller may not have accepted your offer at all, or may have accepted it contingent upon obtaining a Conventional loan. There are probably a thousand ways this example could have gone down. But having the pre-qualification is the first step to being able to make a solid offer on the home you've fallen in love with.
If you need help finding a lender, please call me. I work with several lenders and am always available to help you locate one. I also suggest interviewing several lenders, just as you would agents, before you make your application. You don't want to pre-qualify with several lenders, but you do want to interview several before deciding which one will work with you best.
And once you have pre-qualified, we can start shopping for a home that you will fall in love with.
If you have questions, please call me at 402-239-9668 or visit My Website and click on the Buyer's Resources tab.
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