Mastering the Pre-Approval Puzzle: A Conversation with Mortgage Guru Barry Schwartz

Are you in the market for a new home? If so, you've probably encountered the term "pre-approved" quite often. But what exactly does it mean to get pre-approved for a mortgage, and how does the process work? In this video, Matt Liss sits down with mortgage expert Barry Schwartz to unravel the mysteries of mortgage pre-approval.

Setting the Stage

Imagine this: you're excited about the prospect of buying a new home, and you've heard that getting pre-approved is a crucial step. To shed light on the subject, we spoke with Barry Schwartz. With his vast experience and numerous awards, Barry is an authority in mortgages.

The Basics of Pre-Approval

The conversation kicks off by addressing the question that many potential homebuyers have: What does it mean to be pre-approved for a mortgage? Barry simplifies it for us: "It's going over people's credit, their debt, their income, and what they can afford."

So, let's break it down. Pre-approval involves a thorough examination of your credit score, debt, and income to determine how much you can afford when it comes to a mortgage. Barry's advice is straightforward: "What's your highest payment you can go up to without losing sleep?" Essentially, pre-approval helps you set a budget for your potential home purchase.

Busting Credit Score Myths

One common concern about pre-approval is the potential impact on your credit score. Barry debunks a myth that multiple credit pulls will significantly harm your credit score. He clarifies that if different entities from the same industry, such as mortgage brokers, pull your credit, there's minimal impact. However, the real hit occurs when credit is pulled from various industries like mortgage, car dealerships, and credit card companies. So, don't worry too much about credit pulls during the pre-approval process.

Maximizing Your Pre-Approval Value

Barry emphasizes that just because you're pre-approved for a certain amount doesn't mean you should automatically spend that full amount. He advises potential buyers to consider what they can comfortably afford rather than maxing out their pre-approval value. It's crucial to factor in all your expenses, including other financial commitments like car payments and daily living expenses, to ensure you're not stretching yourself too thin.

The Truth About Self-Employed Buyers

For those who are self-employed, there can be a discrepancy between reported income and actual earnings. Barry highlights this as a challenge. Banks usually base mortgage approval on the adjusted gross income reported in tax returns. So, if you're underreporting your income, it might affect your buying power. While some lenders offer alternative options like bank statement loans, these might come with different terms and interest rates.

Rate Locks and Predictions

A rate lock ensures that you secure a certain interest rate for a specific period, protecting you from rate fluctuations. Barry explains that rate locks are typically contingent on having a contract with an address, closing date, and purchase price. The length of the rate lock can affect the interest rate, with longer locks potentially leading to slightly higher rates.

Navigating the world of mortgage pre-approval might seem complex, but with insights from experts like Barry Schwartz, it becomes much more understandable. Pre-approval involves understanding your financial situation, setting a realistic budget, and considering various factors such as credit scores, debt, income, and potential rate locks. Remember, while pre-approval is a significant step in the home buying journey, it's equally important to be cautious about spending within your means.

Whether you're a first-time homebuyer or a seasoned pro, understanding the pre-approval process can empower you to make informed decisions as you embark on the exciting journey of finding your dream home.