House hunting is exciting. The possibilities before you are numerous. Before you start, though, there is one step to take. Talk to a mortgage professional. We know this takes the fun out of finding a home. You want to get out there and see what is available. Talking to a lender first can save you time and heartache. Following are the most important reasons to consider talking to someone first.
Know What you Can Afford
You might think you know what you can afford, but you can be off base. Let a lender look at your situation. They may calculate your income differently. If you work on commission, bonuses, or have seasonal employment, this is important. You may not realize the full implication of a mortgage payment either. Taxes, insurance, and interest rates play a role in your payment. You may also have to pay mortgage insurance. This adds up. It makes your debt ratio higher. You may not qualify for as much as you think you will. Even if you do, you might not like the payment.
Knowing what you can afford helps you keep things in perspective. That dream house you fell in love with might not seem so enticing. Before you shop for a home, know the reality of your situation. See what you can afford. This way you can keep your house hunting in perspective. It saves time and disappointment.
Sellers Want a Pre-Approval
Just because you love a house doesn’t mean you will be able to see it. Sellers don’t want to waste time either. If you don’t have a pre-approval from a lender, a seller may not show you their home. They might think you are a nosy neighbor or someone not serious about buying. Many sellers only want to show their home to serious buyers.
Without a pre-approval, many sellers won’t accept a bid. Even if they let you see the house, they want to know you can secure financing. If they accept your bid, they take their home off the market. They may be able to take secondary bids, but they can’t act on them yet. They have to wait until the agreed upon date for you to secure financing. If you don’t have a pre-approval, this is a risky step for the seller. This is why many sellers don’t take bids from buyers without a pre-approval.
You Have a Better Chance in a Bidding War
When the housing market is hot, it’s not unusual to see a bidding war. Several buyers that want the same house can escalate the price of the home. If you don’t have a pre-approval, a seller may not choose your bid in the war. They may opt for the buyer with the pre-approval. It’s less risky for the seller.
Know How Much Money you Need
If you’ve never bought a home before, you might be surprised to see how expensive it is. The costs go beyond the price of the home. It costs money to secure a loan. Aside from the down payment, you need money for closing costs. Without talking to a mortgage professional first, you might not know how much you need. We suggest you talk to several lenders. This way you have a good idea of the average closing costs for the area. You can then add these costs to the down payment you planned to put down. Do you still have enough? If not, you may need to shop for a less expensive home. Again, it’s good to know this before you start house hunting.
You May Have a Shorter Financing Contingency
Sellers hate contingencies. It gives buyers a way out of the purchase contract. Some contingencies are necessary, though. It protects the buyer. The fewer you require, the more likely it is a seller will accept your bid. A pre-approval may shorten the financing contingency period. A pre-approval means a lender evaluated your income, assets, credit score, and debt ratio. They approve your initial application. They can’t provide final approval until they evaluate the property you buy. Because they already looked over your credentials, though, they don’t need as long to get you through the underwriting process. Sellers like shorter contingencies. This increases your chance of finding a home.
You Aren’t Stuck With That Lender
Keep in mind, if you talk to a mortgage professional before you find a home, you aren’t stuck with that lender. If you find a better deal somewhere else, you can use a different lender. Talking to someone before you shop gives you a better idea of your situation, though. It gives you a realistic idea of what you can afford. Keep in mind that lenders change rates and fees daily. If you don’t like the rate or fees they quote you when you find a home, you can shop elsewhere. Just use the original pre-approval as guidance when looking at homes.
Talking to a mortgage professional before house hunting can be the most important step you take. It helps you get a good idea of what to expect. There could be things on your credit report you didn’t know were there. A lender might also be able to tell you ways to improve your situation if you want a higher mortgage. They basically tell you where you stand.
It doesn’t cost anything to talk to a lender before you shop. If anything it helps you create a relationship with a loan officer. Because the lender plays such a vital role in your chances at buying a home, it is a great first step.
If you don’t know any lenders, ask your real estate professional for referrals. They often have a good idea of who is good and bad in the area. They may also have special deals worked out with specific lenders. This way you can find the program and deal that is best for you. When everyone works together, the home buying process may not be as stressful for you.