The Home Buying Process, Step by Step
Amy August 28th, 2007
A 5 part series on what steps you need to take to make buying the perfect home easy
As you make the decision to buy your first or next home, the most important first step is to talk to your Realtor, so that I can get you set in a direction that makes the entire process simple for you and as easy as possible. You can read here what other people who were buying a home from me thought of my ability to make things easy for them.
From my perspective as an Accredited Buyers Representative, completely educated and experienced in representing Buyers in their home purchase, I feel that talking with a lender is the most important Step in the entire process. Your financing is the foundation of your home search, it defines what you can and will buy.
Our first of this 5 part series focuses on Financing for your home purchase.
It doesn’t matter if you have never purchased a home before, if you are buying your eighth home, or are preparing to buy a second home for yourself, you must understand where your financial boundaries are. This is a critical element to the entire rest of the process of purchasing a property.
You must talk to a reputable local lender to determine your debit to income ratio, your credit scores and your reserves. All of these and more factor into the loan that you qualify for. I can give you a few lenders names that I work with, who have proven over the years to be honest, reputable, creative and provide excellent service. Based on the type of property or loan you need, I will give you a few lenders.
As you may have heard from others, “A lender will always tell you that you qualify for a home 3 times more expensive than you would want to buy.” This is true with lenders who are not as focused as my select group of associates. I prefer to approach the loan approval dollar figure in a different way.
Loan Approval: pull credit and prove income confidentially with lender constitutes a loan approval, this is more official that a pre-qualification or pre approval
As a client of mine, I assume you have a monthly figure in mind that you are comfortable paying for your mortgage payment. This figure will include Principal, Interest, Taxes and Insurance for your loan, known as PITI. That dollar figure can then be shared with the lender, who will then work that monthly payment backwards to tell you what price range you need to stay within in order to keep your payment at or below that monthly dollar amount. From there, we can stay under a certain price range to keep you comfortable, or go above, as long as you make the decision that the higher price is worth the extra monthly cost to you.
This is one of the first items to discuss with the lender during your loan approval process. The lender asks a multitude of questions that can be answered in about a 20-30 minute conversation. It is important for you to understand that your conversation with these lenders is confidential. Your income, your debit all of that is not to be shared with me, your Realtor. The lender assesses your situation and only shares with me the types of loans you qualify for and how I can negotiate in the contract to get you the best financial terms possible. At no time am I privy to your credit scores, or income figures etc. This is important to me, that you are comfortable with me as your Realtor to sell you a home, I do not need to know that info, only what your price range is and the type of loan you are getting so I can help you capitalize on your negotiations.
See typical Pre Approval Questions here.
Once the lender has the info necessary, they can give you an idea of where your price range should fall. Once this has been determined, they can be prepared to write you a letter of loan approval once we find a property that meets your needs.
A note about your loan approval letter. I find it most beneficial to the buyer to have a loan approval letter that does not provide the dollar amount that the buyer is qualified to buy. It is best to just simply state that the “buyer is qualified to purchase the property located at 123 Dream Street, Cincinnati, OH.� That way the sellers know you can purchase the property based on the listing price, not that you will pay list price. The local lenders that I work with all agree to this type of loan approval letter. Many out of town lenders will not do this as they do not have a relationship with me to agree to this type of letter, and thus they reduce your bargaining position with the seller during the contract negotiation.
This loan approval letter allows me to catapult into my illustrious Preferred Buyers Program! This program gives you priority service when scheduling showings and working to find your home. Having a loan approval is your ticket to a stronger contract and a smoother purchase process. So many times my clients were the winner in a multiple offer situation just because they had a loan approval and the other buyer did not. In strong markets or areas, loan approvals are required with an offer. As a listing agent myself, I will not allow my clients to agree to a contract without seeing a loan approval letter from a financial institution.
In the Preferred Buyers Program, loan approved buyers with local lenders are entered in to the MLS system to get daily updates on local listings that meet their criteria. If you want a 3 bedroom, 2 full bath 2 car garage in Hyde Park, Ohio, priced between 200-300K, then as a home that meets this criteria enters the market, or takes a price reduction, you will be notified immediately via email. This gives you up to the minute info on new listings and recent price reductions that relate to you and your needs. You may get 2 emails a day with new listings. From these MLS emails we will work to compile a list of homes that we can tour and get our feet wet. This gives you a little preview into the second part of the 5 part article, defining the type and location of your home.
It is further important to become loan approved so that we aren’t spinning our wheels in the wrong price range. If you start to see homes that are 100K more than you can afford, once we get you back down into the range that you are approved for, there will be a great deal of disappointment, taking the excitement right out of buying your home. If we look to low, then you don’t know what you are missing in a nicer neighborhood or school district. We can be precise and informed when you are loan approved making the entire process easier for you!
It is important for people who have recently become divorced to be loan approved as financial situations change a great deal and effect the price ranges more than you might realize.
It is important to become loan approved if you haven’t sold your home and plan to buy another before selling. Sometimes this is impossible and you must or want to sell first. It is best to know what you can and cannot do. Many people find out that they need to sell before they can buy in the price range they desire. Others find that they can buy without selling (although risky.)
It is important to become loan approved if you are considering buying a second property that you may not live in or live in part time. Rates are different for these property purchases, and many require higher down payments, so this could considerably affect your purchasing power for your second home.
Many people have no idea what their credit scores are and thus get a better or worse rate when they finally speak to a lender.
Now a little more on a local lender. It is absolutely KEY to the Preferred Buyers Program and your overall experience of purchasing a home to use a local lender in Cincinnati or Northern Kentucky. There are so many regional differences in tax and transfer laws, local traditions as they relate to who pays what in closing costs (See article on typical Closing Costs here), and which local title companies do the best job closing the loans that a local lender will ensure a smooth process. The lenders that I refer have proven themselves through experience with my clients to provide excellent knowledge and service for my clients. I ONLY recommend lenders who I have worked with before, who my clients have raved about, and who have provided the type of service to my clients that I give them myself. I have seen internet lenders fail to have the concern or attention to detail that my trusted local lenders do. I have seen out of state lenders and internet lenders fail to make sure their customer, the buyer, lock in on a rate in a timely fashion costing them thousands of dollars during the life of their loan. I have seen these out of town lenders fail to insist upon an appraisal to make sure the buyer isn’t paying more than the property is worth. I have seen out of town lenders not quote taxes correctly to the buyer and thus approved the buyer for the wrong purchase amount, based on a $300 a month tax bill. Once this was found, the buyer could no longer afford to buy the home that they had already negotiated and paid for a home inspection on etc. Wasting time and money of their “client”? The out of town lenders do not feel the obligation to service you well or get you a great deal or give you the benefit of the doubt like my local lenders do, because they will never see you or me again. My local network will guarantee excellent service, tireless attention to detail, direct contact numbers and communication with you and me, your Realtor. They know that if they don’t provide excellent service, they will not be hearing from me or my clients again. Local lenders will allow me to help you with the small details of the loan process while you are busy at work with more pressing issues. Choosing a local lender is the best possible decision you can make, and key in the home buying process.
The more informed we are at this first step, the foundation, of the Home Buying Process, the better the entire experience will be! I have proven this method time and time again, be the next to buy a home with me!
In my next article we will move on to the second key part of the Home Buying Process, defining the type and location of your home.
