Why Getting Pre-Approved Matters Before You Shop for a Fort Wayne Home
Buying a Home · From Moving Fort Wayne
Why Getting Pre-Approved Matters Before You Shop for a Fort Wayne Home
Money is not everyone's favorite topic, but it is one of the most important parts of buying a home. On this episode of Moving Fort Wayne, Brad Noll and Brock Noye of Noll Team Real Estate talk about what buyers need to know about getting pre-approved, and they set out to do it in about 15 minutes.
Brad had just talked with a young couple who asked how much they should put down and how pre-approval works. It reminded him that people tend to think about money based on how they grew up, and that shapes how they approach getting pre-approved. The goal of this conversation is to replace those assumptions with clear answers.
What Is a Pre-Approval?
Brock describes a pre-approval as the confirmation of what you can purchase, the dollar amount of home a lender will support. To get there, a lender typically asks for W-2s, tax returns, income statements, and employment history. For self-employed buyers, Brock says lenders usually like to see two years of tax returns to confirm income.
Brad puts it more bluntly, borrowing a phrase common in the industry: you have to get naked financially. Some buyers with good jobs push back and just want to see the house. Brock's answer is about expectations. If buyers fall in love with a home they find online, but their pre-approval does not support it, their hearts may be broken. Getting pre-approved first protects them from that.
“The biggest thing between the pre-qual and the pre-approval is the pre-qual is I say I have this. The pre-approval is verifying that you have that.”
Brock Noye
What Lenders Look At
Brad breaks a pre-approval into four main areas:
- Income: what you earn and how consistently you earn it.
- Credit: your history of borrowing money and your credit score.
- Assets: your savings, investments, and how good you are at saving.
- Debt: student loans, car loans, and other consumer debt.
This is why two coworkers with the same job and about the same income can qualify for very different homes. A better credit score or lighter debt load can make all the difference.
Credit can also bring surprises. Brock recently worked with a buyer who was moving to a less expensive home and felt comfortable with her income and payment. When she applied, her credit put a hurdle in the way. Brad sums up the lesson: "just because you're downsizing and it's less money doesn't mean you qualify right away." When that happens, Brock says, the right move is to take a time out, put a game plan together, fix the credit, and then proceed.
Pre-Qualification vs. Pre-Approval
Sellers want a good price, but more than that, they want confidence that an offer will actually close. That is where the difference between a pre-qualification and a pre-approval matters. As Brock explains, "The biggest thing between the pre-qual and the pre-approval is the pre-qual is I say I have this. The pre-approval is verifying that you have that."
Brad notes that an online application often looks only at stated income and a credit score, then issues a pre-qualification. Many borrowers, and even some lenders, do not go through full verification until after an offer is accepted, which leaves real risk in the deal. Brock likes to go a step further and get his buyers fully underwritten before making an offer, so he can tell the listing agent that his buyer is fully pre-approved and underwritten. Sellers and listing agents have to take that seriously.
Loan Options and Interest Rates
There are many loan programs, and Brock points out that the lender is the expert on which fits. He mentions first-time buyer programs and grant programs that can help buyers who are short on funds to close. "There's money out there," he says, and the upfront conversation is how you find out whether you qualify.
Brad shares the basics he hears from lenders. VA loans for those who have served are zero down, with some nuances around using the benefit again. Most conventional programs start at 5% down, and occasionally 3%. FHA is 3.5%. USDA loans are zero down for homes outside city limits, with their own nuances. Brad had just talked with someone who thought you had to put 20% down, which is a common myth.
On rates, Brock says the rate a buyer gets depends on the same factors as the pre-approval, especially credit. A higher rate usually means a higher payment, but there are ways to manage it, such as buying down points or negotiating seller concessions. Brad adds that a payment is made up of principal, interest, taxes, and insurance, often called PITI, and that taxes and insurance vary from home to home. He also cautions that advertised low rates online may require paying several points up front.
How Early Should You Talk to a Lender?
Brock's answer is simple: "As early as possible." Brad agrees. When a man told him he was about six months away from buying, Brad told him to start today, because it may take time to pay down a car loan or other debt. Three to six months is ideal, he says, but there is value even 12 months out.
A pre-approval typically lasts around 90 days, Brock says, and if it expires, the lender can update it by confirming nothing has changed with credit or employment. One of Brock's buyers learned early that credit was the obstacle, followed a game plan to fix it, and when it was time to buy, the process went smoothly.
What Can Go Wrong Right Before Closing?
Brad shares two stories. In his second year in real estate, he helped first-time buyers purchase a $110,000 home in Waynedale. A few days before closing, they financed a couple thousand dollars of furniture on a credit card. Right before closing, Brad explains, the lender verifies employment, reviews bank statements, and pulls credit again. The new monthly payment threw off their debt to income ratio, and they were denied two to three days before closing.
"If you're going to finance something, do it after closing," Brad says. His second story is about himself. About a year into his career, he and his wife Lindsay went to buy a home. Because Brad's income was commission-based and Lindsay had a steady salary as a nurse, the lender put the loan in her name. Brad, the realtor, watched from the side while she signed the papers.
The common thread, Brad says, is that every buyer needs a plan. That is why the Noll Team sets up a buyer consultation before anyone starts looking at homes, and why talking to a lender early is the first step toward buying with confidence.
▶ Listen to the full episode
Why Getting Pre-Approved Matters with Brock Noye, on Moving Fort Wayne.
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