Real Estate 101: The Pre-Approval

In a previous post, I talked about Picking Your Lender. My lender colleagues work hard for your business and more importantly, your trust. 

Real Estate 101: The Pre-Approval

Let's be clear: You technically can buy a house without a pre approval from a lender, but that doesn't happen often anymore. A seller may not accept your offer if the you don't show them that you are approved in advance.
And you can look at houses until you're blue in the face, but how do you know exactly what you can afford and what it will actually cost to purchase your home without having a Pre Approval completed?

I ask my buyer clients at the onset of our relationship what is the monthly payment they feel comfortable with. We live in the payment, so that answer is usually "____ dollars per month."

But how does that translate to the sale price of your new home?

Enter, your lender! Assuming you've already picked a lender, and followed the steps to gather together the important info they'll need-- what happens next?

Getting the Pre Approval

1. Authorize your lender to run your credit. Your lender will need to obtain a credit report to make sure you can afford to purchase a home. You'll need a decent credit score to buy, but my lenders will also be able to advise you how to proceed if your credit isn't quite where it needs to be right now.

2. Find out what you can afford based upon your qualifications.Your lender can tell you based upon your debt to income ratio and credit score, together with the interest rate, taxes, insurance, MI (mortgage insurance) if applicable, HOA/Condo Fees what the max you can spend per month. This does not mean you have to spend it all, because after all, you have to feel comfortable with the payment. But it will tell you exactly how you can get there. You may be surprised what the answer is!

For instance, past clients of mine had convinced themselves they were in a specific price range because of an internet mortgage calculator. They thought they could only afford a fixer upper- a home that was going to eventually need tens of thousands in upgrades and updates to make the way they wanted it. But, after speaking with their lender and him running the numbers, they realized they were able to afford so much more- for nearly the same payment as the internet calculator said!

3. Talk with your lender about what you feel comfortable spending. You are the one signing the check every month. You have to be okay with the amount of that payment per month, nobody else. Your lender will run different scenarios based upon your income and credit scores and the info you provide to them, and give you detailed estimates of what you should expect to spend. You will discuss how much cash you have saved and how much of it you want to put down on your purchase.

4. Determine the Loan Program that works best for YOU.Your lender will also tell you what mortgage program you qualify for. There are lots of different programs, but the most popular are FHA, VA, USDA, and Conventional mortgages, and each will have its own stipulations, restrictions, and specifics. Although I am amiliar with the basics of these programs, your lender is the authority on the specifics and will know what you qualify for. Different lenders also have access to different programs. Not all will do every type of loan, and some specialize in certain types like FHA or USDA or home improvement loans. My lenders have a variety of loan programs to fit the needs of any and every type of buyer.

5. Get Your Pre-Approval Letter.The Pre-App should state the type of program (FHA/VA/Conventional, etc), the purchase price, the interest rate, that your credit was verified, and any other stipulations to your mortgage approval, like the sale of your existing home. That Pre App letter will go with an offer you may write in the future. Generally speaking, these are good for about 30-60 days, but it is always best to have it updated before you and I write the offer on your dream home. Yet another reason why working with a local lender is so important!

6. Review your estimated closing costs with your Real Estate agent.Your lender will provide you with an unofficial estimate sheet that will tell you the purchase price, the loan amount, the interest rate, down payment, and estimate your closing costs. This isn't the official estimate that you receive upon application for the mortgage (That is the Good Faith Estimate, or GFE, and a different blog subject entirely), but it is a good idea of what you should expect to spend to purchase your new home. Knowing what your estimated closing costs are will help decide the terms of the offer. I will confirm these details with your lender and make sure that we are working the numbers to YOUR best advantage.

Once you have all the pieces in place, the next step is finding your home, but that is a subject for another blog...

Until next time,

Steve

Real Estate 101: Picking Your Lender

In a previous blog post, I covered how to and some of the basics of what a buyer's agent should do. In this post, I will touch on what your lender does, and give you quick a rundown of what you should do to get yourself ready to buy a house.

Real Estate 101: Picking Your Lender

I often say "there are a lot of moving parts" to a transaction. In fact, first time and veteran home buyers often tell me how surprised they are at how complicated the process can be. And usually they follow that with "but you and our lender made it all so smooth!"

Picking a lender is as easy- just call your local branch of First National Megabank and asking to speak to their mortgage department, and filling out some paperwork, right? Or going to a website, punching in some data, and letting someone in another state or worse, a computer decide if you're eligible for a mortgage. After all, a mortgage is a mortgage is a mortgage, right?

Yikes! Not in the least!

Picking your lender is just as important as picking the right real estate agent. Your lender is going to be working with you every step of the way, just like your agent. And it is just as important that your agent has a relationship with your lender. Never underestimate the importance of being able to pick the phone up and talk directly to them or stopping by their office if the need arises. Good luck getting someone on the phone from your instant mortgage approval website.

This is why I recommend certain lenders to my clients. I can trust their judgement, know that they are the experts in their field, and will provide to my clients the same level of service and integrity as I will. And they will fight hard for you as their client and make sure you are happy. And more importantly, they are local to this area. They work in the same time zone as we do. (Believe me, this is way more important than you can imagine.) They know this market and what works here.But what should you do before you make that contact?

GATHER TOGETHER YOUR DOCUMENTS!

You'll need to provide all sorts of paperwork to the lender for your mortgage once you have a home under contract, but it is always a good idea to have the following on hand before you start to make things run smoothly:

  • Tax paperwork (W-2's if you work for someone else, 1099's and P&L statements if you own your business)
  • At least two of your most recent Federal tax returns
  • Recent Paycheck stubs
  • List of your assets, including but not limited to bank statements, investment accounts, retirement funds, brokerage statements, real estate you own already
  • List of your debts, including credit cards, student loans, other mortgages, child support, car loans, with minimum monthly payments and balances
  • Cancelled checks for your current rent or mortgage

Gather all this together and put it in a safe place, because your lender will need them!

In my next post, I'll talk about the next few steps of the process.

Until next time,

Steve

Real Estate 101: Picking Your Agent

In this series, I will explain some of the ins and outs of the home sale process. Whether you are a first-timer or on your fifth, this blog is for you!

 Picking Your Agent

There are over 40,000 licensed Real Estate agents in the state of Maryland. Not all of them are active, and not all of them are full time, either. But I guarantee if you talk about buying or selling a house in public, you are likely to pique the interest of every real estate agent within earshot!

But how do you pick the right one? And what exactly does a real estate agent do? Let's look at the buying side first.

Your agent is your guide through the process of purchasing your dream home. Real Estate agents are a fiduciary, meaning they represent your interests above all others at all times. Your agent helps you find property that meets your criteria. They assemble a contract to purchase your new home and negotiate the terms on your behalf with the seller's agent. Once under contract, your agent monitors the entire process, and coordinates the transaction among all participants in the transaction- your lender, the seller's agent, your home inspector, title company, appraiser, and anyone else connected to the sale. I often say there are a lot of moving parts, and knowing how to manage those parts is the most important part of the job.

Sounds like a lot, right? It is! That is why it is so important you pick the right agent. You and your agent have to mesh with each other. This doesn't mean you always have to agree, but it is important that your personalities line up fairly well.

Do you have things in common like hobbies, pets, favorite sports? (GO O's!!)

Ask what they like to do outside of work. 

Yes, we work weekends and evenings when you may be relaxing, but we know how to have fun, too. For instance, I like to travel to National Parks and I collect a patch from every one I've visited. I have dozens of park patches framed in my home office. I also enjoy kayaking and spend as much time as I can when the weather is nice paddling all over Maryland.  I love going to concerts. I'm a big fan of food, in a previous life I was a chef. I'm also into craft beer, and am proud to say I've made the Maryland-Vermont road trip to get some of the best beers in the world!

There has to be a high level of trust.

The purchase of your home is the most expensive transaction of your life. If you can't trust your agent, you don't have the right one. Your agent should be the authority on the market. But more importantly- if they don't know the answer to your question, they must be honest and forthright that they don't, and do their best to find out for you. Your agent must keep you informed at all times, and seek the answers when they don't know them. 

Your agent also has to stay up to date on the latest changes to the industry.

Rules and regulations do change and can have an impact on your transaction. The average purchase contract in Maryland is around 46 pages long. Knowing how to decipher these contracts and what the rule changes are and how they apply is vitally important. We are required to take continuing education classes to renew our licenses. But we also have the opportunity to take various professional development courses, some with certifications, to make sure we maintaining our edge. Your agent should constantly be engaged in their own professional education.

Your agent must keep your confidence.

The details of your transaction are confidential. I don't discuss them with anyone that isn't a party to the transaction and never without your expressed permission. There is no water cooler talk.

Your agent should have a good network of colleagues to refer to you to facilitate the various parts of the transaction.

Title, Lenders, Home Inspectors, Insurance Agents, Contractors- a good agent has a list of vendors they work with that share similar values. My vendors know what I expect from them, which is nothing less than what I expect from myself- excellence and integrity.

As a full time Realtor, this is not my evening/weekend job. At all times, morning to night, I am on duty and ready to assist and answer your questions and alleviate your concerns. This isn't something to be taken lightly- buying a house is a big deal! And I take your business and more importantly, your trust seriously.

Until next time,

Steve