Before you even think about perusing listings, selecting a real estate agent, setting up a home inspection and moving into your new place, you should first discuss the financial process of buying a house with your lender. According to realtor.com, here are three reasons why securing a lender before embarking upon the whole real estate process is so important.
1. Financing is essential for home buying
Most people don’t have limitless amounts of cash lying around to buy a home outright, so they likely will need to secure a loan before hiring a real estate agent. Lenders will review your financial history, which includes your credit score, to determine how much money they’re willing to loan you for your real estate venture. This info, in turn, will help you decide how much of a down payment you can make and which homes are realistically in your price range.
2. Qualifying for a home loan or loan pre-approval
If you have no immediate plans to buy, you might want to get a mortgage pre-qualification that will give you a ballpark sense of your purchasing power without promises of a loan. If you’re actively house hunting, however, you probably want to seek loan pre-approval.
This involves an in-depth exploration of your finances, followed by a solid promise of a home loan of a certain amount. Before being pre-approved, expect to be asked to disclose your income, the amount of money you have in savings, and your credit score and history.
All of this will help lenders determine how much money they’re willing to loan you (and what kind of down payment you can afford). It also can help you determine whether you’re fully ready to embark on the home-buying journey, or whether you should take a step back and do some prep work first.
3. How your loan officer can help
If your financial profile uncovers issues that affect your ability to buy a home, your loan officer can recommend how to make improvements. Likewise, if you’re deemed to be ready and want to start house hunting, a loan officer can give you a heads-up on what to expect on the finance front.
This includes which loan programs you qualify for, your purchase price limit, projected monthly payments, and how much cash you need to have on hand for a down payment, closing costs and reserves.
