Saturday, November 26, 2016

1st Step In Home Purchasing Process ~ Working with a lender

The home buying process can be a little overwhelming if you look at the whole picture all at once.  If you break it all down into bite-sized pieces it isn't so bad.  This, of course, is not every single detail and all the details for each step, but it will give a potential buyer an idea of what to expect going into the process.

I want to start off by saying that it is most beneficial to have a real estate professional by your side as you go through the process.  This will help to have someone to explain each step, keep you on the right path, and fight your fight when it is needed.  

The very first step is to speak with a lender.  The lender is going to help you:

  1. Make sure your credit is at an acceptable level.
  2. Guide you if any changes need to be made to your credit.
  3. Determine how much home you can afford.
  4. Ultimately get you a pre-approval.

Let's look at each of these a little bit deeper.

Make sure your credit is at an acceptable level.  
What is an acceptable level?  Depending on the type of loan you are seeking, the lender has a minimum credit score that is required to get you approved. For an FHA loan, which is the most common and requires the lowest down payment, the required score is usually 620 and above.  There are some companies out there that will allow a lower score, but be careful.  They are going to require you to pay more on the loan.  

Guide you if any changes need to be made to your credit.
It's not the end of the world if your credit is not spotless or if you are below this score when you start. If you are working with a good lender, they will be able to look at your credit and make suggestions on the moves you will need to make to help recover that score into an acceptable score.  They will continue to monitor your progress and work with your real estate professional to advise when you get to a satisfactory level.

Determine how much home you can afford.
I know this sounds silly, but it actually a very important item.  The lender will look at how much money you make, how much money you spend and how much can be allocated towards a house payment.  You don't want to be in a situation where you are house poor, meaning all your extra money goes towards a house instead of other necessities.  So you want to make sure that you are looking at homes that are not out of your price range neither too high nor too low.  

This is also super important if you are wanting to keep your monthly payment within a certain range. Though you may be approved for a higher amount, you may only be comfortable at a certain amount each month.  

Make sure that you don't think that it is only how much the house costs that will determine your monthly payment.  In most cases, taxes and insurance are included into the monthly payment.  Your property taxes may fluctuate on a yearly basis as can your home insurance.  Be extra careful if you want to be at a certain amount.

Get your pre-approval.
Ahhhhh.  You have submitted the necessary paperwork to the lender including items such as current bank statements and paycheck stubs and the lender deems you to be worthy.  You will be issued a pre-approval letter.  The first letter is usually a generic letter that says that you are pre-approved for an amount up to $XXX as long as all of the conditions set by the lender are met.  This letter should be shared immediately with your real estate agent so it can be on file when you are ready to put in an offer.  A property-specific letter can also be provided when you are putting in an offer.  This specific letter will also reflect the amount you are offering on the property as opposed to how much you are approved for.  Great idea if you are not offering all they money you are allotted. 

Pre-Approval vs. Pre-Qualified
If you are super prepared, it is a great idea to get a pre-qualification letter as opposed to a pre-approval letter.  That sounds confusing right?  A pre-approval letter means that the lender has simply quickly viewed the documents you provided and they don't anticipate there to be any problems in the future.  A pre-qualification letter means that you have provided cold hard proof of all items necessary to the lender and there are no other issues after inspection and appraisal.  These are like gold for a real estate agent to have in their hands.  A lot of lenders are able to provide these and then only have to put in house information.  It will make your lending process go faster and smoother with little headaches.  You would be the hero of the day if you are prepared with this.