When buying a house, most folks use a common financing strategy: downpayment + mortgage loan, and then pay a monthly note for the next 15-30 years. A good lender will help you determine what you can afford, as well as the best financing options available to you. To get started, you’ll need to do two things — choose a lender and get pre-qualfied for a loan.
The Importance of Getting Pre-Qualified
With just a little information submitted either online or by phone, a lender can run your credit and give you a good idea of how much you’ll likely get approved for, what interest rate you qualify for, etc. This process is called pre-qualification.
In our current market, being pre-qualified is a must. Most sellers require a pre-qualification letter from your lender, which we’ll submit along with your offer. This letter serves as proof of your financial ability to buy the home. It gives the seller confidence that you will be able to close on the home — the most important part of the transaction for them!
Once pre-qualified, your lender may give you a maximum purchase price based on your income and debts. Keep in mind that they are not looking at your lifestyle — only you can know for sure how the monthly payment will affect your personal finances. I highly advise you take your personal lifestyle, spending habits, and investment goals in mind when setting a home-buying budget.
Related Blog Post: How Much Home Can I Afford?
Choosing a Lender
You are welcome to use any lender you choose, though I strongly urge you to go with a local mortgage company or credit union that has an in-house (or at least in-state) underwriting team. Underwriting will be one of the most crucial parts of the process, and where we may run into potential hold ups as you’re trying to close on a home. Big banks are notorious for causing delays due to underwriting issues. I’ve found that my clients who choose to work with a local lender tend to experience fewer problems and delays overall.
If you receive lender recommendations from friends & family, be sure to ask specific questions such as why they liked working with them, how things went towards closing, and how problems were handled. There are always issues and that’s okay — what matters is that they are resolved quickly.
I’ve worked with many lenders over the years — some great, some not so much. Trust me when I tell you this: choosing your lender is just as important as choosing your Realtor. Your lender will be an important member of your professional team, and you’ll be interacting with them frequently. They will also work directly with your Realtor and the title company.
As for interest rates, you can apply with several lenders and compare rates if you prefer. It has been my experience that most mortgage bankers have access to a variety of loan programs and rates, and can use points to provide you with rate options if that’s important to you. For example, Mark Townsend at Cornerstone looks at the rates from over 20 banks/investors daily and will choose the best offering for you on the day you lock your rate.
Which brings up an important point — interest rates fluctuate daily, and the rate you are quoted today may be higher or lower tomorrow. Your interest rate is not guaranteed until you lock it in. Rate locks typically last for 30 days, or longer if you want to pay a little more. If you are buying close to the top of your lender-approved range, keep in mind that an interest rate increase could pose a last-minute problem by throwing off your debt-to-income ratio. A good lender will help you choose the right time to lock you rate, ensuring your ability to close on the home.
Remember that your lender is a key player in your home-buying process, and should be a trusted partner — just like your Realtor. If you have questions about financing or need a recommendation for a great lender, give me a call. I have several lenders I trust to take good care of you, all of whom stay on top of the mortgage industry trends, regulations, and rates (which change daily). Most importantly, they really care about getting their clients the best financing for their individual situation. I’m happy to send you my list or make an email introduction for you!