So you are thinking of buying a home but do not have a clue where to start. The home buying process is exactly that, a process, but it does not have to be complicated or difficult. Assembling a strong team around you that consists of a thorough and communicative lender, real estate agent, and attorney can make a huge difference when buying a home. From my experience, the home buying process revolves around having a clear and effective line of communication between all parties throughout the entire process. This can make your home buying experience a lot smoother and leave you a lot happier once your finally move into your new home!
Step 1: Get Pre-Approved for a Mortgage (Not Pre-Qualified)
The first chance of breakdown in communication usually happens during the mortgage application process. The mortgage process starts with a simple loan application which consists of your basic legal information from your name to social security number to date-of-birth. This basic information will allow a lender to pull a credit report on you which will give that lender a better idea of whether you have a high enough credit score (usually around 620) to get "qualified" for a mortgage. It can also ensure that there are no late payments or delinquencies on your account. However, a credit report is only one risk layer that lenders look at when evaluating whether you are fully "approved" for a mortgage.
Additionally, you should also be prepared to provide your lender with your employment information and bank statements. Any money you plan on putting down on your home, be prepared to explain where it came from, along with being prepared to explain any large deposits (over $100 or so) on your bank statements. It's the bank's job to ensure your money is 100% legitimate and your information is 100% accurate. I have had clients armed with a pre-qualification letter only to find out, after they fell in love with a home and placed an offer, that their lender cannot give them a loan due to lack of employment history, lack of tax return income, etc. Therefore, it is best to go ahead and get fully "approved" by your lender so there are no surprises once you start the loan process and to give you a competitive advantage over any other offers that may be competing against yours.
Tip: Don't let your lender tell you what you can afford. Instead, figure out what you are comfortable paying each month for a mortgage. Then you can back into your max purchase price by telling your lender what you want your monthly payment to be. Just because you can get a loan on a $200,000 home, does not mean that you will be comfortable making the required monthly payment after you calculate in taxes, homeowner’s insurance, mortgage insurance, and possible HOA fees. Only YOU know what YOU are comfortable paying each month.