Even though owning a home is an individual’s or couple’s sole responsibility, it takes a team effort to get them from the shopper stage to the homeowner stage. Building a team of capable, trustworthy, and experienced professionals make the entire process move along much smoother. Two of the more important members of any home buying team should be:
- Mortgage Lender / Broker
- Real Estate Agent
Finding the Right Mortgage Lender / Broker
The first decision a borrower needs to decide is whether they need a mortgage lender or a broker. A broker is a professional in the real estate industry who serves as a liaison between the buyer and the lender. This person is responsible for doing all of the work in finding the best lender for the buyer’s needs.
However, as helpful as a good broker can be, a buyer needs to practice caution if they want to use one. There are some brokers out there that don’t work in the best interest of the buyer, but rather, they connect the buyer with the lender that promises the broker the highest profit.
Therefore, before selecting a broker or a lender, the buyer needs to do their due diligence before making a final selection for their team. Here are some tips to help you partner with the right lender or broker for your unique home buying needs.
- Research: Before you start talking seriously with lenders or brokers, you need to do a thorough amount of research. Make sure the people or firms you are considering are reputable and licensed in the state where you are buying a home. They should also have no problem providing you with a list of prior clients that you can get into contact with. You can also ask for referrals from people you trust who have recently purchased new homes.
- 3 Offers: Once you have an idea of what type of loan you want to apply for, get at least three offers from three different lenders. This will help ensure the lender you use offers the type of loan you want, as well as determine if any of them are charging extraordinarily high or unreasonable fees.
- Compare Costs: There are dozens of fees associated with buying a home, from the home inspection to survey costs. The interest rate can vary between lenders as well. Compare all of the costs presented in your quotes. Is one lender charging a lot more in fees or quoting you a higher interest rate than the others? If so, remove that lender from consideration.
Choosing a Real Estate Agent
A home buyer needs to connect with their real estate agent on a personal level. They need to like them and trust that they are working hard on their behalf. A good real estate agent can be an incredibly valuable source of information and advice when a buyer is looking to make a home purchase. They can provide the buyer with plenty of answers related to the area of interest, including:
- The average housing costs in the area
- The cost of living in the area
- Quality of the schools
- Conveniences, such as stores, pharmacies, libraries, etc.
- Location of police, fire, and medical services
- Best places to eat or visit
- And more
Like choosing a lender or a broker, there are a few things a buyer is going to want to consider before making this important decision. For instance, a buyer should verify the agent’s licensure and speak with the agent’s most recent clients. The buyer should take a look at the agent’s current listings and ask about their credentials. It is always a good idea to use an experienced agent, but that shouldn’t stop a buyer from using a new agent. New agents are hungry for a sale and will often go further out of their way to satisfy their clients. Another important question the buyer should ask is whether or not the agent has experience selling the type of home they’re interested in buying.
Once the buyer is satisfied that the team that’s being assembled is the right one for their needs, the process of buying a new home becomes easier and all the more enjoyable.
What does a pre-approval mean?
Getting pre-approved allows you to confidently understand what you can actually afford. It does not lock you into a specific lender and you should review offers from both your pre-approval lender and competing lenders before you actually lock in your loan.
Essentially pre-approval provides the buyer (you) with a guaranteed (providing situations and circumstances do not change) loan amount, a monetary figure of how much home you can realistically afford to purchase, therefore, you’ll be able to save time by not visiting homes that are beyond your reach financially, and have a better idea of your home buying budget and mortgage costs associated with the purchase.
Being pre-approved for a mortgage by a lender is an important part of any home-buying journey because it provides you with a strong negotiating tool. A pre-approval letter shows the seller that you are serious about buying a home. Often, simply having this letter can help project you to the head of the negotiating line.
Does Being Pre-Approved for a Loan Commit You to Using That Lender?
Even though you might be pre-approved for a loan through one lender, it does not mean that you are locked into using that lender. In fact, you should seek at least three different offers from three different lenders using the pre-approval letter from one to see if one of the others can provide a better loan offer.
Getting Pre-Approved by a Lender
If you are thinking about buying a home, then you should start getting ready for the pre-approval process as early as you can – at least six months before you apply. The earlier you start, the more time you will have to improve your credit if need be, and to collect all of your financial documents and any other information you may need.
If you don’t already have one, create a budget so you can get familiar with managing your money as efficiently as possible.
Only apply for a pre-approval with a lender that requires full documentation. This will permit the lender to accurately review your application. The documentation will be needed for the actual loan application anyway, so by providing it to the lender with the pre-approval, you’ll be that much further ahead. Plus, you don’t want to get pre-approved by a lender who doesn’t require documentation because it could very well be a false approval. When applying for a pre-approval, always be sure to disclose everything.
The lender will review your credit reports, your income, and employment history and verify all of the documentation you provided. Once approved, your lender will provide you with a list of the loan programs you qualify for, as well as the maximum loan amount you’re qualified to borrow and the loan’s interest rate.
Applying for a pre-approval is essentially a scaled-down version of what you can expect to go through when you apply for the actual mortgage loan. Therefore, it pays to prepare for the process and to manage it the same way.
Reminder – If you get pre-approved for a loan, it is critical that nothing changes with your credit, income, and employment status between the time of the pre-approval and the closing. The lender is pre-approving you based on your existing circumstances and information. Should something change, you may not get the final loan approval you’re looking for.
Read: Mortgage Pre-Approval