Buying a home for the first time has to be one of the most daunting things I’ve experienced. Sorting through tons of financials, deciding where to live, taking a hard look (read: several looks) at my finances – whoo! Looking back at the process, I had no idea how permanent the decision would be. That said, if you’re reading this article, I want to help you understand the moving parts necessary to move this transaction through like a well oiled machine. Once you decide to buy a home, the 3 things you must consider are: getting the pre-approval, asking your lender the right questions and finding a great Realtor.
Prequalification vs Preapproval
Don’t waste anyone’s time. The market has changed drastically since 2008 and while you may believe that your finances can sustain that $500k home, the bank be thinking more along the lines of $325k. A pre-qualification is simply you sitting down with a lender, discussing your finances which gives them a good idea about how much you can afford. Your credit isn’t checked at this point, though you may tell the lender about the state of your credit report as you know it to be at that time. There’s no commitment on either side and frankly, a pre-qualification is worthless until you actually present documentation to back everything up that you’ve discussed. Typically, this is done before you start looking at homes as this gives you a ball park estimate with regards to how much home you can afford.
Once you’re ready to get serious about looking and perhaps making a few offers submitting a contract, then you get into the pre-approval game. Here you submit all pay stubs, tax returns, bank statements and have your credit checked. Once the lender reviews the documentation, this may result in a revision of the original number given in the pre-qualification. You may be happy or sad depending on the final number, but remember: just because the bank says you can afford $500k, this doesn’t mean you should get a mortgage for $500k.
It is important to understand, however, that even a pre-approval is not a guarantee that you will be approved for a mortgage loan. The funding will only be given when the property appraisal, title search, and other verifications check out on the home you have chosen to buy. -Mortgage101.com
Questions For Your Lender
Your lender will typically send over a sheet with all the numbers and keep in mind that everything is negotiable. Make sure to ask the following questions to make sure you have a clear understanding of all the numbers that lie before you:
- How many points am I being assessed for this loan?
- How long will it take to close once the contract is ratified?
- Am I being charged PMI? If so, what will the monthly payment be?
- Does this payment include: PITI: Principal, Interest, Taxes & Insurance ?
- How can I get a better interest rate?
- How long is the pre-approval good for?
- What kind of loan is this? Who owns the loan? FHA? Private investor?
- Please explain each fee listed calculated into the loan? Negotiate each and every one.
Finding and selecting a realtor
A good rule of thumb is to start with recommendations from friends and family members. Good realtors get business via word of mouth so I tend to go with the experiences of those I know and trust. After all, this is a binding transaction and you want the person guiding you through this process to be on their A game. If not, then don’t hesitate to terminate the contract, read more about firing my Realtor. Personally, I look for someone who uses the latest technology, has at least 8-10 years experience (weathered a recession), well known in the community, good disposition but will fight tooth and nail for me behind closed doors and last but not least maintains their integrity throughout the process. That last bit can’t be stressed enough! This is a legally binding decision and you want your Realtor to be on the “up and up” and the guide you through this transaction.
Hopefully these tips help you sail through the home buying process! Remember, it’s best to be prepared rather than sorry! Good luck!