First Steps for First Time Home Buyers
FIRST THINGS FIRST – Getting your pre-approval letter
What most first time home buyers don’t realize is that the first step to home ownership is actually NOT searching for their dream home, but getting pre-approved for a loan instead. That may be a contradiction to what you think should happen first, but without this crucial step, you may not be focusing on the right type of property search.
A pre-approval provides you with the necessary guidelines for your property search. It will tell you a couple things... what price range you can afford, what loan types you qualify for, gives you the necessary credentials in order to place a proper offer to the seller and will help to streamline your entire home search process. If you don't go through this initial pre-approval stage first, you will always be kicked back to it later because in this market you will need to have your pre-approval letter ready to submit with any offer. Without it, you may lose out on your dream home, as other buyers will be submitting offers with pre-approval letters they already have in hand.
The seller needs to know you have done your due diligence in obtaining a pre-approval and you are able to purchase at the price you have offered. Think about it... if the shoe was on the other foot....you are the seller and a buyer comes to you with an offer, but no pre-approval letter. How can you be sure that the buyer will be able to purchase your property? Would you even negotiate with that buyer, not knowing if they will be able to purchase your property? Taking that a step further, would you even want that buyer to be walking through your home if they haven't even checked to see if they could obtain a loan from a lender? This is putting the house before the loan, which is not in logical order for home hunting in today's world. You'd be surprised at how many buyers believe they would have absolutely no problem in obtaining a pre approval letter if they found a home they liked, only to find out later that there were issues getting approved for the amount the believed they could get. Therefore, step number one is to get a pre-approval letter from a good lender and be empowered to know exactly where you stand.
Getting a pre-approval is free and painless. You will need to contact a lender of your choice, talk with them about your income and debts, allow them to pull your credit and provide your most recent pay stubs for employment and income verification. Today there are many online applications you can fill out, as there are many lenders all over the country. You can try the bank you already deal with or a lender a good friend may recommend to you. However, if you are working with a good Realtor, they should be able to provide you with the names and numbers for several good lenders in the area, as the Realtor has already had extensive experience with different lenders and can recommend those that are a step above the rest.
The credit score will be an important first factor because there is a minimum credit score that is acceptable to banks that allow you to be considered as a possible borrower. You don’t have to worry if your score turns out to be below what is acceptable to the bank because a good loan officer will most probably tell you a few things that you can do to help raise your score and give you some idea of how long it may take before you can be pre-approved.
Debt to income ratios are also important, so if you just bought a car, some furniture, took a big trip and charged up your credit cards, you may not be able to purchase as much of a home as you thought you could...and maybe not even be able to purchase a home until some of your debt gets reduced. It's just not how much you make on your job, or how much you think you can afford, but other items are considered also, such as your debt to income ratio. Based off of each buyer's situation, the lender has guidelines to follow which are supposed to help keep the buyer's borrowing to a level where the buyer can succeed in home ownership. All of this knowledge is priceless, for it will get you started on the path to home ownership, whether the lender can pre-approve you right away or whether it will take a few months down the road when you pay off a little more of your debt.
Additionally, if the lender is local, they may set up a meeting with you where you can bring in additional documentation. If they are not local, you will be sending your documentation via email or uploading into their secure systems. Either way, the more documents you supply now to the lender, the fewer you will need to supply later when you actually do have a property under contract.
One of the interesting points I’d like to make here is quite simply that some lenders do a much better job than others of caring for their customers...just ask your Realtor. Some lenders don't take a holistic look at the buyer's financial background upfront and end up denying the loan after weeks of the buyer being under contract, when they actually discover certain items they should have noticed from the beginning that would have caused the loan denial from the very start. Additionally, some loans and buyer's financial history can be more challenging than others and some lenders are not empowered to go the extra mile to resolve these issues if there is a chance to overcome them. On the flip side, the buyer can be denied the loan if they go out while under contract and open up new lines of credit or make large purchases (car, furniture) which ultimately will change their debt to income ratios. Just know that both the lender choice you make and the choices you yourself make during your contract period are of extreme importance.
ALIGN WITH A GOOD REALTOR®
You may already know of a good agent that your friend has used in the past or found an agent online that seems to be quite active in your area with listings and sales. The goal is to find a full time Realtor® who is in the market every day and knows the subtle changes that occur on a daily basis within that market. It will benefit you to align yourself with that type of agent and let them guide you on your search.
In addition to being full time, you should also align with an agent that displays good communication practices, following up with you on every question you may have. One of the most interesting things I hear from home buyers is that they wished their Realtor® stayed in touch with them more during the home buying process. If you find that you are not happy with the type of communication you are getting from your agent, then know it is time to move on and find another agent. The reason that I stress this is because I know how convoluted processes can be while under a contract. You do not want to be left out in the cold, not knowing exactly what is going on. Contracts are very serious documents with serious consequences if things go array. You need an experienced agent to help you navigate the market, keep you within the time limits of your contract, and provide you with the necessary information to help you make sound decisions in all your real estate transactions.
MOVING ON TO THE FUN STUFF
Now that you found a great lender, have a solid pre-approval letter, and a knowledgeable agent, your Realtor® will ask you for a copy of your pre-approval letter so he/she knows what your price range is and the loan types you are approved for. This is especially important in the real estate market today because there are so many homes out there that do not qualify for certain types of loans and the Realtor® can usually inform you upfront whether a home looks to meet your lending criteria or not. Your Realtor® should also set you up with a free property alert email where all the homes that meet your criteria will be sent to you for your review as soon as they come out on market. You can refine your search to whatever you wish….bedroom count, garage, basement, pool, etc. It is important to communicate with your Realtor® at this point to review exactly what you are looking for so that your search can be as specific and streamlined as possible in order to meet you needs.
TOURING THE PROPERTIES WITH YOUR REALTOR®
When you do find a home that you like, just give your Realtor® a call. Your agent will be able to provide additional information before your showing by looking up the property on their Multiple Listing Service (MLS) portal. If your Realtor® is an experienced, full time agent, he/she may have already toured the properties you are interested in and can give you first hand insight about the conditions of the home. With this helpful insight, you both can determine whether this home is a good candidate to go and view.
Several properties can be viewed in succession on whatever day works best for you. Some Realtors® will meet you at the property and have you follow them to other properties that you are viewing. Other Realtors® will let you ride with them to tour the properties. Just ask up front to determine how your Realtor® works. Due to insurance liability, you'll find that many Realtors® prefer that you ride to all the properties in your own car.
It is usually important to get out to the property as soon as possible because if it is your dream home, you will want to put your offer in as soon as possible. For this very reason, it is important to find an agent that works full time so that you can get into each property at the very earliest opportunity. In a seller's market, this is extremely important, as a lot of homes that are priced well and are in good condition will usually go pending the very same day they list!
READY, SET, GO!
Now that you have your pre-approval letter ready, your property alert system flowing to you through email, and your awesome agent to help guide you along the way, you are ready to find that dream home of yours and write a purchase offer whenever that right home comes along!