The most common question Buyers ask...
Devon Batista April 20th, 2020
At least once a week I receive a message on social media from someone who is considering purchasing their very first home, and it always starts with the same question, "Where do I start?"
This blog post will frame out 2 important steps you must implement to ensure you're well prepared and have a smooth experience along the path to homeownership.
#1: Know Your Financial Situation
The first thing anyone should do when considering purchasing a home is to speak with a lender, specifically a mortgage professional. There is a difference between the way banks service loans and lenders originate loans, and it is important that you are speaking with someone who specializes in mortgages.
Banks offer many different services from managing accounts, to servicing various loan types. Mortgages are just one aspect of their business. Mortgage Loan Originators are registered with the National Mortgage Licensing System (NMLS), and have passed both a national and state exam. Because these companies only service mortgage loans, the process is more streamlined than that of a bank and can result in a quicker close.
Although there are financing resources readily available online, speaking with a professional over the phone, or in person, allows for a more personalized experience. It is important to note that every lender will have different requirements, recommendations, and processing fees, so peak with multiple lenders, compare their information and services, and decide which option best suits your needs.
Many people fear that during these initial conversations a lender will run a credit report, in turn affecting their credit score. However, a professional lender will be able to ask questions in order to gather some unofficial financial information and provide an estimated approval amount. *This is not a pre-qualification, and does not mean you are approved for said amount. Once you have decided which company you would like to service your loan, they will require a number of official documents in order to fully evaluate your potential and produce a pre-qualification letter for the approved amount.
The pre-qualification letter is crucial when writing an offer on a property because it provides the sellers a sense of security that you, the buyer, has been approved for the financing necessary to support the purchase. Pre-Qualification letters come with an expiration date (typically 90 days) in order to ensure the approval accurately reflects the client's current financial situation.
#2: Determine Your Timeframe
Becoming a homeowner is very exciting, but it's important to maintain reasonable expectations along the way, especially when it comes to the timeframe. It is easy to say "I want to be in a house by the end of the year" or even "I want to be moved in my this date...", but there are other elements to consider when making this move.
Current Living Situation: A lease, roommates, family, and even having to sell a home before being able to purchase and move into a new home are all scenarios that could affect timeframe. In any of these circumstances it is best to be open and honest with whomever may be affected by the move. When working around a lease, it's a great idea to start seriously searching for a home at least 3 months before the lease term ends in an effort to keep a reasonable window of time for a 30 - 45 day Close of Escrow, as well as avoid an fees for breaking a lease before the term is complete.
"Seriously searching" in this context means having a customized home search sending you potential listings, and privately viewing the properties you are most interested in submitting an offer on.
When the purchase of a home relies on the sale of another property, the lender needs to be made aware of this contingency, and the property should be listed at a price that is supported by the data of the neighborhood's market and numerous comparable listings. A professional agent will have the resources to provide relatable market performance statistics in order to set honest expectations for the selling process.
If credit repair is a weighing factor as to whether the loan can be funded, then the time required to improve the credit report must be taken into consideration. Again, I would never recommend seriously searching for a house without a Pre-Qualification Letter from the lender.
Timeline of Events: The purchase process involves numerous check points before becoming the new homeowner...
The Offer - When submitting an offer it is common to request a response within the next 24 hours, however the sellers may have multiple offers on the table and could wait until the following Monday to review their options and respond to everyone, or perhaps there are schedule conflicts/restrictions in place that can make for a suspended response. As inconvenient as this may be, it happens all the time, so when writing an offer, always have another offer prepared for another property of interest in an effort to save time and quickly move onto the next opportunity.
Under Contract - The average purchase is taking 30 to 45 days to close. During this time there can be numerous inspections and repairs, an appraisal, there may be tenants that need to move out, or the sellers may need to close on a property prior to closing the deal. There is always an element of risk when working through these checkpoints, so it's better to prepare for any possible delays rather than be caught off guard when a speed bump comes along.
Closing Day - Believe it or not, closing day is no longer a major event of signatures, pictures, and getting the keys to the new home. In fact, sellers and buyers will sign the closing documents on different days prior to the determined Close of Escrow date, and the keys are not handed over until the loan has been properly funded by the lender, and the purchase has been recorded by the county clerk. This process, from signing documents, to receiving the keys, can usually take around 3 business days.
With all of these different variables in place, 6 months is the best time to speak with a lender and sort out the financial situation and opportunities available to you, and 3 months is when you should start the search, at the latest. It is always best to keep realistic expectations about the purchase process and to remember that risk is in the nature of purchasing a home and should not be feared. There is always a solution.
Want to talk more about the purchase process? Please don't hesitate to reach out - all of my contact information can be easily accessed by clicking the phone and mail icons at the top of the page. I am always happy to continue this conversation, and I really just want to be available to you as a professional resource that you can count on to guide you to success during this exciting time of your life!