DEAR JENNY: Should I get pre-qualified before house hunting?

Absolutely! Even if you haven't so much as picked out houses to visit yet, it's important to see your mortgage professional first. Why? What can we do for you if you haven't negotiated a price, and don't know how much you want to borrow?

When we pre-qualify you, we help you determine how much of a monthly mortgage payment you can afford, and how much we can loan you. We do this by considering your income and debts, your employment and residence situations, your available funds for down payment and required reserves, and some other things. It's short and to the point, and we keep the paperwork to a minimum.

Once you qualify, we give you what's called a Pre-Qualification Letter (your real estate agent might call it a "pre-qual"), which says that we are working with you to find the best loan to meet your needs and that we're confident you'll qualify for a loan for a certain amount.

When you find a house that catches your eye, and you decide to make an offer, being pre-qualified for a mortgage will do a couple of things. First, it lets you know how much you can offer. Your real estate agent will help you decide on an appropriate offer, but being pre-qualified gives you the confidence to know you can follow through. More importantly, to a home seller, they won't have to wonder if they're wasting their time if you don't qualify for a mortgage to finance the amount you're offering for the home.

If you don't qualify right now due to income or credit issues, its best to know as early as possible so we can work with you to improve your situation.  Purchasing a home is a step-by-step process and preparation is the key.

JENNY'S TIPS: Buying a home? Then don't do this!

Things to Avoid Before You Buy a Home

Many new homebuyers make the mistake of rushing out to buy things to fill their home with as soon as the seller accepts their purchase offer and the lender pre-approves their loan. But there are still a few major hurdles to overcome before the keys are handed out. Here are some things to avoid during the home buying process to assure your transaction goes as smoothly as possible.

Don't make an expensive purchase 

It may be tempting to order that new sofa for your soon-to-be living room, but its best to avoid making major purchases like furniture, cars, appliances, electronic equipment, jewelry, or vacations until after the closing. Financing that furniture with a store credit card or even one of your own credit cards could jeopardize your credit worthiness during the time it means the most. Using cash to purchase big items can also create a problem because many banks take into consideration your cash reserve when approving your mortgage.

Don't get a new job

Lenders like to see a consistent job history. Generally, changing jobs will not affect your ability to qualify for a mortgage loan - especially if you are going to be making more money. But for some people, getting a new job during the loan approval process could raise some concern and affect your application. 

Don't switch banks or move money around

As your lender reviews your loan package, you will likely be asked to provide bank statements for the last two or three months on your checking accounts, savings accounts, money market funds and other liquid assets. To eliminate potential fraud, most loans require a thorough paper trail to document the source of all funds. Changing banks or transferring money to another account - even if its just to consolidate funds - could make it difficult for the lender to document your funds.

Don't give a good faith deposit directly to the seller in a FSBO (For Sale By Owner) purchase 

As a rule, your good faith deposit belongs to you, not to the seller, until the deal closes. Your FSBO seller may not know that your good faith funds should be applied to your expenses at closing. Get an attorney or other neutral party who can hold the deposit or put it in a trust account until you close on the home. Your purchase contract should dictate to whom the funds go should the transaction fall through.

Don't disregard your lenders requirements 

You may have been pre-approved for the loan but your work with the lender is far from over. In order to process your loan, you need to meet certain requirements. Your lender will need copies of your bank statements, W2s and other paperwork. It is up to you to get it to him or her as soon as possible. Failure to submit certain qualifying documents could cause you to lose your loan and the financing you need to buy your home.

What to know before you go house hunting

Would it surprise you to know that your Realtor would prefer to work with clients who have their pre-qualified letters ready rather than working with clients who don't? As a Realtor, it is his or her responsibility to find the perfect house for you no matter how many miles they have driven, how much money spent on gas, and how much time invested into finding you that dream home. So before you start house hunting, here are some financial tips to make sure you're ready to get a mortgage:

1. Make a chart of your current income and expenses. How much can you budget for your mortgage payment every month with principle, interest, taxes and insurance (PITI)?

2. To ensure your loan gets approved, your mortgage should be no more than 38% of your gross income (NOT NET AFTER TAX DEDUCTION), and your total monthly mortgage payment plus all payments based on your current debt should not exceed 48% of your gross income (do not include your utilities). And a smart tip: just because you can get approved for more than your budget doesn't mean you should try to buy more.

3. Be prepared to explain any length of time when you were unemployed.

4. Know your credit. You can get a free credit report once per year for free. Go to http://www.annualcreditreport.com/ and get yourself a free credit report. If you have many delinquencies on your credit report in last 12 months, then it may be difficult for you to get an approval.

5. How much money do you have in reserves? The minimum FHA mortgage requires 3.5% down payment from the sales price. The USDA Rural program does not require any down payment, but you should still have some money in savings. The more reserves you have, the better off you are in dealing with life's many unexpected events.

6. The most important tip is to work with a licensed loan officer/mortgage consultant before you start looking for your new house. They can assess your financial situation and if you're ready, provide a pre-qualification letter that your Realtor will need. You should consider working with someone who has many years of experience, knows and understands underwriting guidelines, and most of all, is dependable and there when you need them. They answer the phone or get back with you within a reasonable amount of time. You should never have to chase down your loan officer.

As a first-time home buyer, there are many uncertainties that lie ahead. You should be able to rely on your Realtor and your mortgage consultant to help you every step of the way.

Don't forget about taking advantage of the $8,000 tax credit for first-time home buyers, including buyers who have not owned property in last 3 years, that gives you cash in your pocket. This program is set to expire November 30, 2009... so ACT NOW!

Questions? Contact Jenny Phung at 972-731-0165, email jenny@jennyloans.com, or visit my website at http://www.jennyloans.com/.