We all know this on a gut level:
- Every buyer should start the home buying process with the all important first step of getting pre-approved for a mortgage.
- As well, salespeople should make every effort to insure that a buyer meets with a lender or mortgage agent to determine the maximum home price a buyer can afford.
This can save a lot of time and lead to a successful, equity-building home purchase.
Yet some buyers fool themselves. They deceive themselves into thinking that affordability is no problem.
This is one of those stories as told by one of our REALTORS®. In my earlier years in the business, though I made every effort to qualify buyers before taking them out to find the home of their choice, I came across one couple I knew. They wanted to buy their first home and were very anxious to start looking--a common occurrence. They exhibited complete confidence in their ability to buy without any difficulty.
So I listened to what they wanted and, with some reluctance, showed them homes in their stated price range. Within a week they negotiated an accepted offer for $175,000.
A condition of the offer was to obtain a mortgage.
In earnest I set up their appointment with the lender and, after a couple of days, they were told they did not qualify for the mortgage amount they sought. This was not good news.
- The couple was very upset with the lender but mostly with themselves. They admitted they should have followed my advice before reaching this point.
- As well, my doubts were realized. Not knowing their financial ability caused uncertainty and, though my gut told me this, their certainty and their enthusiasm to buy influenced me.
They became so discouraged that they decided to give up on buying altogether.
Two years later
I didn’t hear back from these people until 2 years later saying they were ready to buy. This time they did not hesitate to meet with the lender to review their affordability. They paid $163,000 for the home they purchased. Two years before that same home would have been worth around $153,000. They paid $10,000 more and lost two years worth of equity by waiting.
Would they have purchased a home in an affordable price range without waiting, they would have paid less and gained equity as a result of the home’s appreciation.