When beginning the home buying process, one of the first things you should do is contact a lender to get pre-qualified.
It’s important to know what you qualify for and what you are comfortable spending per month before going out to look at properties – often these numbers aren’t the same and a lender can walk you through this process. For example, the number that you pre-qualify for might be a lot higher than what you can comfortably afford each month. There is no fee associated with getting pre-qualified, you aren’t locked into a rate and you aren’t obligated to use the lender. It’s a win/win.
We recommend our clients do their due-diligence and reach out to at least 3 lenders; It’s important to select a lender you feel good about since you’ll be working closely together throughout the home buying process.
So, what should you look for in your new lender?
- The types of programs they offer, especially if you need a creative loan (if you don’t have much cash on hand, want to buy before you sell, have a high debt to income ratio, etc).
- Get a feel for their personality. You will be working with them closely so make sure you can easily connect.
- Do they work on evenings and weekends? This is a biggie! When we find the house you love and want to write an offer on, they will need to get you a pre-approval letter for that property with the offer price and downpayment amount to submit with the offer. We work with you on evenings and weekends, your lender should too. Responsiveness is key!
- Are they local? Believe it or not a lender in a different time zone can cause major issues now that TRID is in play. Lenders have to meet certain deadlines and if they are late, settlement can be delayed by several days. We have had an issue more than once when the settlement was at 9 am or 10 am and the lender out west was not yet open for business. Plus, local lenders are more incentivized to do an excellent job for you and your Realtor. It can also help give you an edge in a competitive situation if the other Realtor knows and trusts your lender. The listing agent will likely contact your lender to ensure you’re qualified.
- What’s their reputation? Are they experienced? Do they have agents and clients to vouch for them? Look into it.
- Do they have in-house underwriting? This is not a deal-breaker per se, but certainly can be very important. If they have their own in-house underwriting, that is a huge plus! Typically, smaller banks are better in the lending world. Big banks like B of A and Wells Fargo, even some credit unions, can be very slow moving. Small, local banks are much more agile and can make exceptions more easily, and typically know everyone they are dealing with throughout the process. At a larger bank, your lender might have underwriters in a different state.
- Are they creative? Some lenders can easily spot ways to get you to qualify for a loan, for example paying off one credit card and closing another in order to lower your credit score. Creative lenders can open the door to lower mortgages.
Now that you have identified what to look for in a lender, how should you prepare for the call, meeting, or email?
- When you reach out to a lender, you will want to know how much cash you have for a downpayment and closing costs, plus how much money you feel comfortable spending each month for a mortgage.
- To get prequalified, you will typically not need full documentation on your income and employment history, but you will need this information down the line so it’s not a bad idea to start thinking about gathering that information. Think tax returns, W2’s, etc. Again, not needed right away, but they will want to generally know your earnings.
- Nothing to do here, but be prepared that the lender will also run your credit to get your credit score to see what kind of interest rate you will receive. Of course, not without your permission.
If you feel like you are months or even a year away from making a move, it’s never too early to reach out. They can help you figure out how much you will need to save in order to afford the type of home you would like to buy. The best place to look for a lender is a referral from your Realtor or from a close, a local friend who had a great experience. The advantage of a Realtor’s recommendation is that instead of having dealt with them for one transaction, they have dealt with them for possibly hundreds and know their overall reputation in the industry. It is not legal for Realtors to get kick-backs for their recommendations, so you can rest assured that any recommendations are not to the advantage of your agent.