Buying a home is stressful… anyone who says it isn’t, is either lying or trying to sell you something. Unfortunately, not everyone gets all the information they need to make an informed decision, and that is when things go off the rails.
I have the sweetest couple right now that I am helping to buy a home… hopefully. They called me super excited that they are pre-approved with a family friend who happens to be a lender. I asked the appropriate questions…
1- “Who is your lender?”
2- “What are you preapproved for, and what price range do you want to look in?”
3- “Do you know what type of loan do you have?”
4- “Do you have money for closing costs, or do you need seller assistance?”
5- “What are your top 3 things you are looking for in a home?”
These are important questions and answers…
1… Is it a reputable lender? Is it someone local that I can contact with questions that my clients don’t have the answers to?
2… Preapproval is how much the lender says you can purchase up to, and the price range you want to look in is how much you can afford. These are very often 2 very different numbers.
3… Many buyers do not know what type of loan they have been preapproved for. If they are not sure about what loan they have been preapproved for then it is usually a pretty good sign that they also did not ask about #4, or a few other questions that they should have asked.
4…. You do not need 20% down payment to buy a home. You don’t even technically need the 3.5% down payment for the FHA loan as there are down payment assistance loans, and the USDA/RD loan, which is a 100% loan, that are available. Most people know about down payment, but many people forget about, or don’t know about closing costs. Closing costs are those costs associated with a buyer getting their loan, the transfer of title, taxes, insurance, etc. A buyer can also use closing costs to ‘buy down points’ to lower their interest rates. See prior Blog on how that works at http://www.LearningToBuyAHome.com.
5… Every buyer can give me a long list of wants, and don’t wants, on what they are looking for in a home… unfortunately buying a home is not like a build your own sundae bar, you don’t get to pick and choose for the ‘perfect’ home. I always say, ‘give me your top 3 wants in a home, or what you absolutely don’t want, and let’s do all we can to make that happen… and hope it is in your price range.” I have a magical personality, but no actual magical powers….that I know of… yet.
So, my clients and I go out looking at homes, and found a couple that they really love. Unfortunately one of the homes was listed at a lower price point to encourage a multiple offer bidding situation… which sucks for everyone, and at that price, my clients could not compete. The other home was fantastic though, and my clients were super excited to make the offer. So, before we wrote up the offer, I contacted their lender for an updated preapproval letter and for information on what my clients didn’t know. I got their loan information, and yes, how much they needed for closing costs because they did need some . I also got information on what my clients mortgage payments would look like, and sent it over to them. It is a good thing I did too because even though they were preapproved, they didn’t know how much their mortgage payment was going to be at that amount. When they asked me if that was a one time payment, or if that is what it would be every month… I knew they were not expecting it
When you, or someone you love… or even remotely like, are thinking about purchasing a home (whether it is your first home, or your 50th) there is a certain order of steps that you ‘should’ take…
1- Take a home buyer education class. There are quite a few of them around, but they are not all the same. I’ve been teaching home buyer education (& home seller education classes) since 2006. They are free & non-promotional and taught at Marshall & Firstenberg Community Centers (& online through zoom). I’ve taught hundreds of buyers and sellers the good, the bad, and they ugly… and those questions that they need to ask before they start their home adventures. Most of the class attendees have thought that I am pretty funny, and the others? What others??
Anyhoot, after you take a home buyer education class, you need to get preapproved, and when you are talking with your lender they will need some information from you to begin your preapproval process. A lender will need 2 year tax returns, 3 months bank statements, your last couple of paycheck stubs, and yes, they will need to pull your credit. Sometimes the preapproval process is relatively quick, and sometimes it takes a bit longer, if there is some work that needs to be done. A good preapproval is one that has already been looked at by the underwriters. What are underwriters? They are the people who say whether you can have a loan, or not… they assess your risk as a buyer… what is the likelihood you will pay back your loan. Your lenders job is to prove to the underwriters that you are good risk and should have the loan. Now, when you meet with your lender, you also NEED to ask questions like..
1- Is this the best loan for me? What are my other loan options? Why is this loan better than the others?
2- What are my closing costs? What are the fees for?
3- What is my monthly mortgage payment going to be at the amount I am preapproved for?
*4*- (and I am going to star this one because it is important) What amount will I be preapproved for if I want my payment to be XX amount?
#4 is a very important question. Like my sweet clients, you may experience some (or a lot) of sticker shock when you hear what your payment will be at your preapproval amount. I know you have a number in mind that you are hoping your mortgage will be, or preferably, under, and often…usually…. that number is going to be less than the mortgage number that you are preapproved for. You are a responsible adult, ask your lender how much home you can buy if you want your mortgage to be XX amount. Remember that the government controls the interest rates… not your lender. Please don’t yell at them because interest rates have gone back up to rates that are more historically ‘average’, and that our current market is a reflection of the craziness of the last 5 years. We don’t like it either…
Before you go out and look at houses, you need to make sure your preapproval is in order. Remember that a pre-approval is just a snapshot of your current financial situation. It is not a guarantee, or a promise of a loan. All a preapproval says is that a lender has looked at your financial paperwork and credit, and that they ‘could’ give you a loan IF you get a home under contract. Once you have an offer accepted on a home, then your loan process can actually begin. You don’t go grocery shopping without knowing how much is in your bank account, you should NEVER go out house hunting without knowing how much home you can comfortably afford. As their Realtor, I want to make their home adventure as smooth and stress free as I can. Like GI Joe said… Knowing is half the battle! So, ask questions, and if you are not sure what questions to ask… take a home buyer, or home seller, education class. If you are not sure you want to take a class, go to website as there are helpful blogs on there… you can also just give me a holler. I am always happy to assist, but I won’t sugarcoat my answers… but I might try to make you smile.
Please contact me for assistance to you when you are thinking about buying or selling your home.
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