Things to Know
Talk to any real estate professional about the home buying process, and the first thing they will tell you to do is talk with a lender so you can figure out what you can afford and get a pre-approval letter.
What isn’t often communicated, though, is what you should do to prepare for that conversation.
If buying a house is one of your goals for 2022 — or even 2023 — it’s important to plan ahead and get your financial ducks in a row. Douglas Elliman agent Harris Benson says you should ask yourself two important questions:
1. Why do you want to buy?
People buy for all sorts of reasons: a growing family, moving in with a partner, new job or new city, downsizing, as an investment, etc.
2. How long do you plan to own the home?
Depending on your line of work or personal situation, you may know already that you'll likely be moving to another city in a few years. Unless you plan on holding onto this home as an investment, this is an important factor to consider, as it should drive your overall search.
Check out Benson's picks for the best Houston neighborhoods for millennial homebuyers here.
So now you’ve thought about the two questions and decided you want to talk with a mortgage lender about the financing.
Here are some tips to help you prepare for this important conversation:
Organize your finances
In order to properly advise you on the financing options and qualifications, the lender will need all the pieces to the puzzle. Before talking with the lender, be sure to come prepared with the following documents/information (as they apply to your situation):
- Two most recent years of W-2s (wage and tax statements)
- All paycheck stubs or earnings statements received in the last 30 days
- Form 1099 (retirement, self-employed, disability income)
- Schedule K-1 (business income)
- All Internal Revenue Service Forms
- Information about student loans and other debt obligations
- Most recent two months of bank statements or most recent quarterly statement for any account your down payment might come from
- Other assets and income sources
Don’t be concerned if you don’t have some of the documents mentioned above, as they may not apply to every situation.
The more transparent you are with the lender up front, the better the lender will be able to serve you. If you feel it’s applicable to your financial background/story, be prepared to discuss it.
Determine your budget
Buying a house is a big undertaking, and it’s important to fully understand what your current costs are on a monthly basis. Take time to look at your expenses so you can fully understand your current budget.
Your monthly payment is the driving force in your search. In addition to the mortgage, there are other monthly costs to keep in mind when owning a home. Be prepared for the following:
- Home insurance
- Flood insurance
- Property taxes
- Home maintenance and upkeep
- Utility costs (electric, water, gas, internet, etc.)
- Homeowner’s association fees
Plan to talk to multiple lenders
When determining who to talk to about a loan, ask your friends and family who they used and get a list of local lenders from your Realtor. You don’t have to use the bank where your checking account is!
Benson suggests starting the conversation with two to three lenders to determine who you feel most comfortable with, and then proceed to the application phase with the one you feel is the best match.
Prepare to interview these lenders
Yes, the lender will be asking you questions — mostly related to the two questions at the beginning of this article. That being said, you should have the mindset that you are really interviewing them to ensure they are qualified and are a good fit for you.
A good lender will be patient and answer your questions in detail to make sure you understand the process. If you are a first-time homebuyer, be sure to ask about any programs that can help you buy a home. A good team is crucial!
Don’t fall for teaser rates
When you begin the hunt for a loan, you might see rates advertised online. Know that these rates are often based on criteria that doesn’t match your unique profile, or are for a loan that's completely different from what you really want or need.
If you take the process of choosing a lender seriously, that person will set you up with the best situation possible.
"Buying a home can feel like a daunting task, but if you prepare ahead of time and surround yourself with professionals, then you will be set up for success," says Benson. "You can do this!"
When you're ready to begin viewing homes, contact Harris Benson at 713-299-3015 or email@example.com.