When it comes to buying your first home, the most common hesitation I hear is “I don’t know where to start”. Many times, someone who is interested in taking the step into home-ownership ends up just sticking with their current living situation simply because they didn’t know what steps to take, and were overwhelmed by the amount of information they have to comb through online. Other times they may go to friends or family who have purchased in the past only to receive potentially inaccurate information. The real estate industry is constantly changing, so that friend or family member may have purchased a home when loan requirements were different, or they may just be in an entirely different financial situation. For example, I’ve had a number of clients in the past that were under the impression that a 20% down payment is required. While that’s an excellent goal, it’s certainly not the standard. So in order to help those future homeowners better understand how to navigate the home buying process, there is one very important piece of advice that most professionals in the industry will tell you. Speak with a Mortgage Lender and get pre-Approved first.
One of the most common mistakes I see is when a home buyer decides they want to purchase, and they immediately contact a Real Estate Agent to start viewing properties that they found online. While any experienced Agent should ask if you’ve spoken with a Lender up front, often times the buyer is eager to start shopping and will just choose their price range based on an online mortgage calculator. This leads to two very common scenarios: First you may not qualify for a loan of that size, and second you may not understand the full scope of the monthly payment that comes with that price range.
In the first scenario, if you go with your agent to view properties that are priced at $350,000 only to realize once you’ve spoken with a Lender that you only qualify for a loan of $250,000, a home that initially may have looked perfect at the appropriate price range won't look nearly as desirable in comparison to the higher range. This, unfortunately, sets many buyers up for disappointment even though the lower priced home may have been exactly what they were initially looking for.
In the second scenario, a very common pitfall is using an online mortgage calculator to determine your price range. A full monthly mortgage payment often includes a number of different things such as principal, interest, homeowner’s insurance, property taxes, mortgage insurance, flood insurance, etc. Many times online mortgage calculators will only account for Principal and Interest, meaning that it might tell you that your monthly payment will only be $1,000 when in reality it may be more like $1,400 for the same property. Again, this can set buyers up for disappointment when they have to reduce their price range in order to stay within their budget.
Another reason it’s important to speak with a Lender before starting a home search is to have a full understanding of what will be required of you as a buyer. Things like minimum down payment, what type of loan is best for you, credit score requirements, the costs involved with purchasing, the timeline to close on your new home, and what type of paperwork needs to be provided are just a few of the many topics that your Lender should cover with you when discussing your potential home purchase.
As a first-time buyer, it’s important to understand that all Mortgage Lenders have to adhere to guidelines that are determined by government agencies like the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA). Many times these guidelines dictate very specific things, such as how we are required to “source” funds that have been recently deposited into a buyer’s bank account. Going over your financial standing in detail with your Lender early will allow them to guide you effectively on how to best prepare yourself for purchasing your home and help you avoid any potential hurdles that may have come up down the road.
Purchasing your first home can be an incredibly exciting and fulfilling experience, but unfortunately, sometimes it can also be a frustrating or even painful one. For all first-time home buyers, speaking with your Mortgage Lender as early as possible is the best way for you to fully understand the process of buying a home!