What’s the first step in buying a home?
The absolute FIRST thing you need to do is get pre-approved for a loan. Not just “pre-qualified” but fully approved – meaning the lender has looked at your tax returns, employment records, bank statements,etc… People often confuse the ability to afford a property with the ability to actually qualify for financing. The lending industry has gotten very tricky over the past few years and it’s harder than ever to qualify. Here are just a few examples I’ve seen recently that illustrate how important this first step is:
- Buyer owns a home but can’t sell it because there’s no equity. Does the math and decides that he can rent it out and cover the entire payment, taxes, etc… Goes to a builder and starts the process of building a new home (including putting down over $20,000 in deposits). He knows he has excellent credit and income so waits until about 2 months from closing to start the loan process. Finds out that in order to use the income from the property that will become the rental, he must have 20-30% equity in it. He has to qualify for BOTH mortgages without the rental income. He doesn’t qualify and has to fight for the $20,000 back. In addition, he’s wasted time, energy, etc…
- Buyer makes over $100,000 and is sure she has great credit, finds her dream home. Quickly calls her mortgage broker to get a pre-approval letter to submit the offer and finds that there’s an active collection of $72 from a cable box that was not turned in. By the time the buyer clears up the collection and pays a couple hundred dollars to have her credit re-scored, the home sold to someone else.
- Buyer was pre-approved 9 months ago, then stopped looking for a house, but bought a car and closed a few credit cards. She stumbles upon a home she loves and writes an offer with her old pre-approval letter. She gets under contract spends close to $1,000 on option money and an inspection, then finds out her credit dropped 35 points. Her rate is 1.5% higher and she can no longer afford the payment.
There are a million different scenarios that could come up, so before you start looking, get approved! I advise against just going with your bank. They can only quote you their rates. A mortgage broker can quote 20-30 different bank’s rates and find you the best deal. It’s a good idea to talk with at least two different local brokers (not an internet company like DiTech) and get a good faith estimate from each so you get a true comparison. I recommend Suzanne Michaels with Barton Hills Mortgage (512) 557-0073 and JoeBob Everett with Advantage One Mortgage (512) 219-7746. Remember – customer service is just as important as a great rate and low fees.
How do I choose an agent?
- If you know what area and/or neighborhood you want to be in, find someone who specializes in that area. This can make all the difference in finding a good deal, hearing about the great listings first, and getting solid advice about the positives AND NEGATIVES about a potential property.
- Choose someone with experience. Your agent does a whole lot more than unlocking doors. You need someone who is a powerful negotiator, knowledgable about inspections, disclosures, surveys, title insurance, etc… You’re purchasing what is probably your largest asset – any mistakes can cost you big.
- Choose an agent with considerable production (Minimum $5 million annually). Less than 10% of Realtors actually make a living selling real estate. A new, part-time, or struggling Realtor is more likely to be concerned about getting paid than advising you on potential shortcomings of the property you’re interested in. A veteran Realtor is more likely to value their long-term reputation over any one sale.