Talk to any real estate professional about the home buying process, and the first thing they’ll tell you to do is speak with a lender so you can figure out what you can afford and obtain a pre-approval letter.
What isn’t often communicated, however, is what you should be doing to prepare for this conversation.
If buying a home is one of your goals for 2022 — or even 2023 — it’s important to plan ahead and put your financial ducks in a row. Agent Douglas Elliman Harris Benson says you should ask yourself two important questions:
1. Why do you want to buy?
People buy for all kinds of reasons: a growing family, moving in with a partner, a new job or a new city, downsizing, an investment, etc.
2. How long do you plan to own the house?
Depending on your industry or personal situation, you may already know that you will likely be moving to another city in a few years. Unless you plan on keeping this home as an investment, this is an important factor to consider, as it should guide your overall search.
Check out Benson’s picks for the best neighborhoods in Houston for millennial homebuyers here.
So now you’ve thought about both questions and decided you want to talk about financing with a mortgage lender.
Here are some tips to help you prepare for that important conversation:
Organize your finances
In order to properly advise you on financing options and qualifications, the lender will need all the pieces of the puzzle. Before speaking with the lender, make sure you have the following documents/information ready (as they apply to your situation):
- Last two years of W-2 (salary and tax returns)
- Any pay stubs or earnings statements received within the last 30 days
- Form 1099 (retirement, self-employment, disability income)
- Schedule K-1 (business income)
- All Internal Revenue Service forms
- Information on student loans and other debt securities
- Bank statements for the last two months or most recent quarterly statement for any account your deposit may have come from
- Other assets and sources of income
Don’t worry if you don’t have some of the documents mentioned above, as they may not apply in all situations.
The more transparent you are with the lender from the start, the better they will be able to serve you. If you think this applies to your financial history, be prepared to discuss it.
Determine your budget
Buying a home is a big business, and it’s important to understand what your current costs are on a monthly basis. Take the time to look at your expenses to fully understand your current budget.
Your monthly payment drives 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
- House care and maintenance
- Utility costs (electricity, water, gas, internet, etc.)
- Homeowners association fees
Plan to speak to several lenders
When figuring out who to talk to about a loan, ask friends and family who they’ve used and get a list of local lenders from your real estate agent. You do not have to use the bank where your current account is!
Benson suggests starting the conversation with two or three lenders to figure out who you feel most comfortable with, then moving on to the application phase with the one you think is the best fit.
Prepare to Ask These Lenders
Yes, the lender will ask you questions – mainly related to the two questions at the beginning of this article. That being said, you need to have in mind that you are really interviewing them to make sure they are qualified and 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’re a first-time homebuyer, be sure to educate yourself about programs that can help you buy a home. A good team is crucial!
Don’t fall for teasing rates
When you start looking for a loan, you may see advertised rates online. Be aware that these rates are often based on criteria that don’t match your unique profile, or are for a completely different loan than what you really want or need.
If you take the process of selecting a lender seriously, that person will put you in the best possible position.
“Buying a home can seem like a daunting task, but if you prepare ahead of time and surround yourself with professionals, you’ll be set up for success,” Benson says. “You can do it!”
—
When you’re ready to start viewing homes, contact Harris Benson at 713-299-3015 or [email protected].