The Most Important Thing to Do Before Looking for a House

Today, we live in a culture where information arrives instantly at our fingertips. Information about homes for sale is no different. Anybody can look at a house, whether they are old, or young, rich or poor; the information is available for anyone.

Now let’s think about only those people who are qualified to buy a house. Chances are they have large cash reserves or the minimally decent down payment needed to purchase. But even they might shop for a house without doing the most important thing they need to do.

So what is the one thing that is so important? The answer is simple: finding out your max price. Your max price should be known to you. If you are getting a loan, your max price is determined by your loan advisor and it may appear on your preapproval form. Your real estate agent will also have knowledge of your max price, even though you might think it is confidential information.

Why should your real estate agent have this information? She should have it because it places a cap on the searches she will do in finding your house.

Is your max price confidential information? Well, yes, it is, and it should not be shared outside of those trying to work in your best interest. That is why your loan advisor knows your max price, your real estate agent knows your max, your significant other knows your max price… and that’s about it. For everyone else, like the seller you are trying to buy from, you do not reveal your max price to them, for obvious reasons.

To be sure we are all on the same page here, the max price is your down payment plus your maximum possible loan amount you qualify for. If your preapproval letter shows your maximum loan amount, that is not your maximum purchase price. If you see that, add your down payment to determine your maximum purchase price. That is when the search truly begins.

Many of my clients ask me: “Let’s see property first and then I’ll get qualified.” Denying my clients of this suggestion might insult their reputation and pride, especially if they make it clear to me if they have the means to purchase property. So what do I do? For repeat clients, I usually oblige them and tell them that we can see property first and get qualified later. For newer clients, I have to stick to my guns and tell them that you must get qualified first.

Why do I stick to my guns? The answer is twofold: the first is that I am a professional. While the client calls all the shots for decision making regarding the purchase of the house, it is my responsibility to create the conditions that make success porrible.

The second answer has to do with time. I respect my clients’ time as well as my own. If we see properties without establishing the price range or qualification, period, then we are wasting time out on the field looking at properties the client does not qualify for. In fact, I have had many overqualified clients looking for property, only to learn that they have auto loan debt they forgot to pay down, student loans they did not touch for years, or other debts that may hinder their ability to get credit.

So when these issues are identified early, what can they do? They can fix them early when there is time to do. What happens if the issues are not addressed right away and the client insists on looking at property? The results can be disastrous, and let me explain why.

Imagine finding the house of your dreams but you are not yet qualified to purchase on a house. Because many sellers impose deadlines for offers, you are now against the clock in getting qualified for a loan. This puts pressure on the loan advisor and added stress on everybody. After getting qualified, now imagine that your max price is less than the listed price of the home you love, and let’s assume there are multiple offers out there on the house already.

From this case study of being underprepared to offer for a house, we see that the origin of the problem was not knowing what the max price is for a house before shopping.

So in summary, we learned that finding out your max price before house shopping is like putting the horse ahead of the cart—it is the smart way to go.