There is a lot of excitement that surrounds purchasing your first home, or any home for that matter! You need to make sure that you are smart about knowing what you can afford and what you are willing to pay before you actually start home shopping. There is a big difference between dreaming about homes and actually going out to look at houses you may purchase. One of the most deflating things that we see in our business is people that get their heart set on a certain home only to find out that they can’t actually purchase that house.
Get Pre-approved with a lender
Getting pre-approved with a lender should be the second step in the process after you find your realtor. In fact, your Realtor will be a great resource for lenders that they have worked with in the past that have a great track record of closing deals. A good lender will take the time to look through all of your financial information and ask you questions about your finances, work history, etc., and they will be able to talk you through the process to let you know exactly what the home purchase will look like financially.
Beware of lenders that don’t want to have a conversation with you or that don’t take the time to actually look through your documentation. These types of lenders are assuming that you fit into a mold with a certain credit score, a certain credit amount, and a certain amount of debt and they will typically not be able to see the big picture if something were to come up down the road that you need help with. Most importantly, if the lender has a call center that you call into instead of a direct line to a representative that will help you, then you should be very careful about how you will be treated as you attempt to get through your closing. Just like any other type of business, the personal relationship is a huge deal and will help you close the deal with no problems down the road.
It would also be in your best interests to work with a loan originator that has a lot of experience in the industry. The originator that has been around for years really knows the business and where they can bend the rules or work within a gray area vs. the originator that is brand new and has not had to deal with the multiple curve balls that come up in their business.
Take your Pre-approval letter to your Realtor
Once you have your pre-approval from your lender, take the letter to your Realtor. You and your Realtor will be able to have a very deep discussion about what is available in the areas that you are looking for, with the amenities that you are looking for, and most importantly, within the price that you feel comfortable with.
At this point, you Realtor will be able to set you up on a home search that will pull properties that you may be interested in, and that you can afford. The best thing about this is that you know that everything you are looking at is a definite possibility because you have already spoken with the lender and you know exactly what your finances look like.
The importance of Pre-approval when making an offer
When you find the house that you love and it is time to make an offer, you and your realtor will put together all of the documents needed to send to the seller’s agent to make the offer on the home. Ever seller wants to know that you are actually going to be able to do what you say you are going to do financially, so part of the offer package that gets sent to the listing agent is a copy of your pre-approval letter. If you have not gone through the pre-approval process, then a seller is taking a huge risk on you being able to get financed, and they will not accept your offer until you have obtained pre-approval.
While you are waiting for the lender to do their thing and get you pre-approved, that leaves the seller of the house you want open and available to continue accepting offers. Our industry moves very quickly, and in the few hours it takes for a lender to run your numbers, there could easily be another offer that comes in.
There are many listing agents that won’t even present an offer to the seller if there is not a pre-approval letter attached, so it is in your best interest to go ahead and take care of this before you start shopping for homes.
Catching things you may not know about during the pre-approval process
Another thing that is extremely important for purchasing a home is making sure you know your whole financial picture. The government and each bank have a set of rules that they need to follow in order to give you a mortgage. A lot of people have an idea of what they can afford, but the banks tell us something completely different (either higher or lower!).
We recommend that you start this pre-approval process about 4-6 months before you want to be in your new house so that you have time to make adjustments to your financial picture. Some people don’t realize that they needed to save for closing costs, and some people have surprises that come up in their credit reports that they either didn’t know about or thought was taken care of. Starting this far out gives you time to go in and make adjustments as needed, whether tucking a little more away in savings each month, or getting with a credit repair company to correct errors in your report that will increase your credit score.
Some buyers even realize that they can accelerate their timeline by going through this process because they are in way better shape than they thought they were.
Whatever category you fit into, if you are going to use a mortgage to buy a home, make sure to get that pre-approval completed before you start home shopping. This will potentially save you a lot of drama down the road.