Most people might think that looking for a home comes first, but having just gone through all of this, I suggest getting your financing in order first…so that you’re ready to pounce on the dream home when you find it. Wonderful as it is when everything falls into place, it’s devastating when the money side falls apart – and on that note…
Money. A lot of money… is needed to buy a house. (Unless you’ve figured out how to grow money on trees, in which case, I’d love to know your secret.) Regardless of your source, money is required to purchase a home. I’m going to guess here that the financing aspect of buying a home is probably the most daunting part in the entire process for most. If not, you’re a lucky one. While I am not an expert, I will share with you a few of our experiences that might help you feel a little more reassured about the financing side of buying a home.
First, there is an important distinction to make. Being pre-qualified and getting pre-approved are two different things. Being pre-approved carries a stronger value. To put it briefly, being pre-qualified essentially means you’ve talked to a lender and based on limited, basic information (income, debt, etc.) they agree they think you’ll qualify for a mortgage. Being pre-approved gets a bit more dirty. You’ve talked with said lender and they’ve pulled your credit, you’ve given them an amount for which you’d like to be approved, you’ve submitted bank statements, taxes, pay stubs, etc. etc. etc. (our lender calls it the “infamous list”) and the lender has “crunched the numbers” (I’ve always wondered where that saying originated) and come back with interest rates, closing costs, etc. Basically, the money is yours pending approval (usually from an underwriter). You are a stronger candidate to a seller of a home if you’re pre-approved. The lender can provide a pre-approval and/or a pre-qualification letter for you to submit with an offer on a house.
Okay, now that those are out of the way, here’s the good news. There are actually a lot of options out there when it comes to financing a home. Even better news, there are lots of options for first-time home buyers. At first, we were limiting ourselves to using our credit union (with which Zach has been banking for life and through which I intentionally got my car loan in order to build some financial history with them). Turns out, they weren’t the most competitive, by far, particularly when it came to closing costs, which we knew we needed from a seller anyway. Enter: Agent (see my previous blog about whether to use an agent). Our agent pointed us to a lender who has provided us with a product that perfectly suits our needs! Mortgage and/or finance companies have the ability to offer products not available through banks, which generally offer traditional options.
There are other sources for financing mortgages, too. The government is an option (this is accessible through your lender). Certain states may have programs, too. Keep in mind that you must qualify for some of these programs. VA has loan programs, but again, you must qualify.
The process for procuring financing can be a lengthy one. Here’s what we learned along the way. A good loan officer can give you a rough idea of where you stand in regards to a mortgage simply by getting a few details from you and working through the numbers. Be honest throughout this entire process – and on that same topic, be conservative. You’ll be glad for it. Be prompt – if your lender requires information – get it quickly. Don’t necessarily be sold on the first option. NEWS FLASH: In the past, it’s been detrimental to shop around for mortgages, because every company pulls your credit. It’s now OK for you to have unlimited mortgage-related credit pulls within 30 days. So, get multiple options and choose from there. Be good to your credit and finances until a few days after you’ve closed…only then may you go charge all of your new furniture, décor, etc. on your credit card. But, maintaining the financial picture you present to your lender is crucial – they will re-verify your credit/finances the week and morning of your close. NOTE: Quitting your job at all during this process is not recommended.