How to buy a home – Step 3

In step 2 of How to buy a home we covered how to analyze your needs with a one on one buyer consultation.

getting pre-approvedThe next step in the home buying process is Getting your finances in order.

Step 2.  Get your finances in order and getting pre-approved

Ah money! After you have discussed your ideal criteria with your agent you will now get a feel for how much a home will cost in the location, size and condition you want to purchase. If you do not have liquid assets to make this purchase you will need a pre-approval letter before heading out on the town in search of your new castle. Your agent should have trusted referrals to share as they work with these professionals on a regular basis. Get 3 or more referrals from your agent, friends, family or co-workers. Try to get referrals from people who have actually worked with these people to get a mortgage and not just someone who knows someone. There are several types of places you can get money to purchase a home: Lenders, Mortgage brokers, Savings banks, Credit Unions, and hard money investors are just some resources.

Shop around to several of these. All these banks and lenders have different ways of lending money and therefore have different programs that can cater to different folks. A Credit Union for instance may only offer conventional financing with the best rates but you need to have 20% down payment versus a Mortgage Broker who can find programs such as USDA or VA that offer no money down programs. Fair lending laws protect you while shopping around. You are allowed to shop within the same industry for your best program and rate without taking a credit hit. If any lender tells you otherwise move on because they are attempting to scare you into not shopping around. All top professionals have no problem telling you to compare others because they know they are the best and if you look around you will find this to be true.

Once pre-approved, get the letter to your agent. Trust your agent to give them the maximum approval, if they need an adjusted letter they can reach out to the lender to have new letter generated. In most cases, it is better to show you are very qualified by providing a pre-approval letter that is for more than your offer as opposed to providing a pre-approval letter that is the same value as your offer.  When this happens, the listing agent will have to assume that you are maxed out and you could possibly have your offer rejected because the agent and seller feel you can not get approved for more money.  Your agent can not negotiate effectively if they are not given all the information. If you are not comfortable giving your agent all the details you may want to question yourself as to why you are working with someone you can’t trust with this. Shop for a new agent.

If you are paying cash for a home, go to your bank and have the banker generate a Proof of Funds letter stating the amount of available cash for purchase.

Do not delay on either of these tasks. In a strong sellers market you do not want to wait until Monday when you bank reopens to be able to get these letters, the house you found may be gone by then. So have these ready before you start looking.

Now the fun begins – Step 4 – Searching for homes

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