The first step in buying a home is to get pre-approved for a home loan through a lender, mortgage broker or bank. Unless you know how much you can afford, you can waste a lot of time and energy looking at homes you can’t buy. Getting pre-approved saves time and ensures that home-sellers will take you seriously.
Beware of the big banks.
Large banks (like B of A and Wells Fargo) often offer low-cost or free loan products which can be very attractive. And we know the names of these banks so in the absence of other knowledge we can feel more comfortable going to them rather than some small lender we’ve never heard of. But it’s worth reconsidering.
Getting, or trying to get, a home loan from a big bank can be a nightmare. Because of their size, the big banks have layers of bureaucracy that can at times feel impenetrable. I’ve seen loans take 3 and 4 times as long to process through big banks as smaller lenders. And they often provide poor customer service because you are just one of many borrowers. I even had the recent experience of Bank of America turning down a loan they had already approved… a month into escrow!
If you need a referral for a mortgage broker or a lender, here are two with whom I’ve had great experiences. They’ve provided great customer service, are always careful about their approval process, and they process and fund loans quickly:
What do you need to get pre-approved for a home loan?
The pre-approval process is a lender’s way of getting a clear picture of your finances. To do this they will require you to provide documentation of every piece of your finances. This includes getting proof of your income and employment for the past two years, tax returns for the past two years, proof of your assets and debts (statements from every checking, savings and investment account for the past several months, and statements from any other loans you are currently paying including student loans, credit cards, auto loans, other mortgages or home equity loans, etc.). Once you’ve gotten all the required information to them, they will run a credit check and enter all of your financial information into loan processing software. You should know what amount of a loan you can afford within 24 to 48 hours.
One word of caution
Lenders will pre-approve you for the maximum you can afford. However, most of us don’t want to live on rice & beans and never go out to dinner and never take a trip to Hawaii. So once you’ve been pre-approved, do your own calculations. If you bought a house for the maximum pre-approval amount, what would your monthly payments be? Don’t forget to factor in taxes and insurance. Is paying that much each month realistic? How much will be left over for the rest of your life, and is that enough? Usually you’ll want to purchase at least 5 to 10% below your pre-approval price.
More questions about buying a home? Call or contact us below: