I can remember the first home I wanted to purchase…it was a charming bungalow, close to the quaint downtown square, it was built in 1916, and it was mine. I’d found it early one Sunday morning, while driving to the farmer’s market.
I’d stumbled upon this house…now what?
Turns out, I’d gone about it a little backwards, putting the cart before the horse, so to speak. You could say I learned the hard way, given that although I knew this was the house I wanted to buy, but I hadn’t gone through the steps necessary to actually make the purchase. And it was gone by the time I had my ducks in a row. SO, to save you the same heartache (I’m still pining over this house – on Adams Street – 22 years later), here’s what you need to do so you don’t miss out on purchasing your next home:
FIRST STEP: Connect with a Lender
There are many aspects to consider when interviewing and determining which lender is best for you
- Will your Lender work on weekends? Many offers are written on weekends, and although you should have a pre-approval letter in hand, it’s nice to know that your lender is available anytime, to answer questions that may come up.
- Competitive rates: Interest rates can vary from lender to lender, and are based on a number of factors, including things like:
- How much you intend on borrowing
- The type of loan you’re interested in (30 year fixed, or a 5/1 adjustable arm, for example)
- Your credit score
- Your down payment
- How responsive is your lender? You’ll want to find a lender that’s able to respond to you within 60 minutes, during business hours and over weekends, within reason, of course.
- Local/brick & mortar vs. online 800 number – do you want a lender that’s responsive and familiar with the local offer customs, or are you dialing into a call center, 9 to 5 weekdays only, Eastern Standard Time. This can play a critical role in the offer process, especially if it’s a multiple offer situation.
- Consider taking recommendations – either from your agent or trusted friends/colleagues.
- Communication – It’ll be 30-45 days of intense communication about you, your credit and your finances…make sure there’s a connection between you and your lender.
- This will help you identify your target price range.
- Knowing ahead of time what you can afford to spend will allow you to avoid the “eBay affect” – bidding above your cap, because you get wrapped up in the moment. It will also prevent you from walking into an open house for a home that is above your price range. The worst thing you can do for your home shopping morale is fall in love with a house you can’t buy – then compare everything you can buy, to it. You’re just setting yourself up for disappointment.
- The offer process moves fast – and sellers expect a Pre-Approval Letter in your Offer Package.
- It alleviates some of the stress. With all the offer paperwork that involved, it’s best for your sanity that you get the pre-approval process out of the way.
- A good listing agent will reach out to a buyer’s lender to glean as much information as possible about the buyer’s ability to obtain a loan. Are you confident enough in your lender to speak on your behalf?
Big Bank or Broker – what’s the difference?
- An institutional bank, like Chase, Wells Fargo and Bank of America, can offer you a loan “product” from a set list.
- A mortgage broker is able to “shop” products from all lending sources available, including products from big banks. Depending on your financial situation, this can offer you more options from which to choose.
The difference between Pre-Qualification & Pre-Approval
In this competitive market, Sellers have the expectation the buyers will come to the table with a Pre-Approval Letter, this all but guarantees that the buyer they select will have the ability to obtain financing to purchase their home. There is, however, a big difference between a Pre-Qualification and a Pre-Approval:
Pre-Qualification – this is simply a 5-minute phone conversation between you and the lender. They will ask you a couple of questions then give you a suggested price range for your home purchase. There is no exchange of paperwork or hard facts to support your ability as a buyer to obtain a loan.
Pre-Approval – this is much more involved. You’ll have an initial consultation with a lender and they will ask you to provide them with a list of documents that support your ability to obtain a loan. A sampling of just a couple of items from the list:
- W2’s / 1099’s from your employers for the last 2 years
- Tax Returns for the last 2 years (extensions are not allowed)
- Last 2 pay stubs
- 3 of your most current bank statements
- Authorization to pull your credit
What does “Double-Apping” mean?
Double-Apping is when a seller requires a buyer to apply for a loan with a lender of their choosing in addition to the lender with whom you have already been pre-approved. This gives the seller the confidence in choosing you as the buyer, ensuring your ability to obtain a loan, whether you use your preferred lender or the lender the seller has recommended.
Ultimately, the choice is yours on who you’d like to use to secure a loan for your home purchase. The above are all important points to consider (hint: it’s A LOT more than just comparing interest rates).
The Bottom Line: Who You Work With Matters – it’s just as important to find the right lender as it is to have found the right agent to represent you.
As always, my team and I are available to answer questions and help you through the entire purchase process. For an overview on how the home buying process works, visit http://thebuyersexperience.melissamenardhomes.com/