Hi there, home buying hopeful! We are covering the 10 Things Every Aspiring Homeowner Needs to Know. So far, we’ve discussed:
- Whether you should really be buying, or if you should stick with renting
- What your credit situation looks like to lenders
- How much house can you afford?
Now, you need to know how to start shopping around for a Realtor® and a mortgage lender.
Your Realtor® should be someone who serves as the “quarterback” during the home-buying process — he or she will not only help you locate the house that fits your needs, but will help you coordinate with inspectors, lenders, title companies, repairmen, etc.
Ellen Derrick, Realtor® and CFP®, says, “This can be pretty tedious, and because so many things in a real estate contract are time-sensitive, you want to make sure someone is helping you stay on top of all the deadlines you must meet.”
You may be tempted to skip the help of a real estate professional and just call listing agents yourself. Before you do that, be aware that the buyer’s real estate agent is normally paid out of the commission that the seller has already agreed to pay his broker.
If you, as a buyer, don’t have your own agent, the selling agent most likely gets to keep the whole commission. “You’re not necessarily getting a better price on the house if you aren’t represented,” Ms. Derrick says. “In reality, you probably will get a better deal being represented by an agent, because that person’s job is to help you make the best offer based on the state of the market (which could be moving quickly in your area) and the home’s condition.”
Here are a few considerations when shopping for a Realtor®:
- Make sure your Realtor® is someone that you are comfortable dealing with as a business partner — a friend may or may not be the best choice. If something goes awry, will it permanently affect your friendship? If so, pick someone else.
- Interview more than one real estate agent, even if you like the first one you meet. Ask lots of questions. Check out this checklist from Forbes for examples.
- If an agent makes you feel uncomfortable in the very first meeting, he or she isn’t the right fit for you. When I sold my house and bought my second house, I interviewed a few real estate agents, and one of them wouldn’t stop his pitch long enough to listen to anything I was saying. It was quickly apparent that he was not the right person for me.
- Make sure the person you pick has experience in the area you’d like to live. Suburbs or even specific neighborhoods may have significant differences, so make sure you use someone that specializes in your target area.
Next, you need to know what company you will be using to finance your purchase. You will be talking and coordinating with this company A LOT, so you must choose carefully. Here are a few dos and don’ts you should keep in mind.
First, here are a few steps to take when evaluating a potential lender:
- If you already have one, ask if your Realtor® has a few lenders that he or she recommends. Realtors® usually know which lenders can get loans closed without the hassle.
- Ask friends who they used. What did they like or dislike about their mortgage broker and lender? “Ask your friends whether there were any problems during their closing process that the lender blamed on the ‘back office’”Ms. Derrick says. “You expect your lender to stay on top of the loan process and let you know early on if there are any problems that may delay your closing.”
- Evaluate mortgage lenders by both competitiveness of rates and on customer service. If you start coordinating with a lender and you dread talking to them, it’s OK to switch if it’s still early in the process.
- Get pre-approved for a loan. A “pre-qualification letter” is different from a “conditional approval” or “pre-approval letter.” Lenders tend to use these terms interchangeably, but they are slightly different. The pre-approval letter only comes after the bank has fully vetted your financial situation. This usually includes evaluating a bunch of verifying information (credit report, tax returns, pay stubs, account statements, etc.). You want to get a pre-approval letter because:
- Your offer on a property may be favored because the sellers know that you will most likely be able to qualify for a mortgage. “The pre-approval letter is the one that makes sellers realize that you are ready to close on their house, and sometimes will make them accept a lower offer, since they know that you are ready to go with your financing,” Ms. Derrick says.
- It helps identify any potential issues on your end early in the process. You want to be able to fix credit report errors or adjust your home-buying budget before you put in any offers.
Here are a few things to avoid when evaluating a potential lender:
- Don’t proceed with anyone who is pressuring you.
- Don’t use someone who tells you to lie on your mortgage application in order to get qualified.
Now that you’ve figured out how much house you can afford, and who to put on your home-buying team, we’re ready to cover which mortgage is best for you, so stay tuned!