4 Reasons to Meet a Lender Before Home Shopping
“Should I meet a lender before looking at homes?” is a question many homebuyers ask. The answer is yes! Meeting with a lender is one of the first steps home buyers should do before beginning their home search. In fact, one of the first questions your Realtor will ask is if you have met with a lender.
Waiting until you have found your dream home before talking to a lender is a mistake many first-time homebuyers make. Let’s look at a few reasons why talking with a lender before looking at homes is in your best interest:
1. Lenders provide a pre-approval letter.
An important step in the home buying process is knowing when you are ready to buy. A lender will discuss your financial readiness and provide a pre-approval letter when you are ready to purchase a home. The pre-approval letter is essential to have in-hand when shopping for a home.
Many home buyers mistakenly think pre-qualified is the same as pre-approval when in fact they are quite different. Pre-approval is an official step that requires the lender to verify your financial information and credit history.
3 reasons the pre-approval letter is important:
- Pre-approval gives a clear idea of how much you can borrow.
- Realtors will request a pre-approval letter before showing homes. Your pre-approval gives your Realtor direction on what price range your home search should include as well as your lending and buying options.
- The pre-approval letter may be required by the seller before accepting a contract on the home. Pre-approval is a strong sign to the seller that you can afford the home and adds credibility to your offer.
Meeting with a lender early and shopping for homes with your pre-approval letter in-hand sets you up for success in the competitive home-buying world.
2. Your lender will Discuss Mortgage Options
In today’s market, obtaining a home mortgage can be a difficult process, especially for first-time homebuyers. Lending requirements have consistently tightened restraints on the borrower’s ability to obtain financing.
Fortunately, there are still mortgage options buyers can explore if you know where to look. Meeting with a local, qualified lender early in your buying process will ensure you know your options.
Common mortgage options available:
- Traditional FHA: The Federal Housing Administration (FHA) insures loans so that lenders can offer better deals to first-time homebuyers. FHA loans allow smaller down payments and can be flexible with credit score requirements. FHA loans also allow gifted down payments and assistance from family members or assistance programs. With this lending flexibility comes additional guidelines such as mortgage insurance premiums and the home must meet certain condition standards.
- Fannie Mae Home Loans: Fannie Mae loan programs are often an attractive choice for homeowners. Fannie Mae loans allow for lower down payments, as little as 3 percent in some cases and there is often no upfront mortgage insurance premium. This program was designed to help low to moderate-income buyers but does have specific requirements based on where you reside.
- Veteran Loan (VA): If you are a veteran or currently serving in the military and a first-time homebuyer, it is possible you qualify for a VA loan through the Department of Veteran Affairs. VA loans often require no money down, no private mortgage insurance (PMI), and typically offer low interest rates. The USSA outlines eligibility requirements for veterans, service members, and their spouses.
- Conventional 30-year fixed: A conventional loan can be an attractive lending option for buyers who plan to stay in their home long term. Interest rates and monthly payments stay consistent over the course of the loan. The requirements and conditions do change often so it is important to discuss this option with your lender to see if you qualify for this type of loan.
2. Lender will discuss Home buying costs.
There are many costs that can take homebuyers by surprise. Discuss these costs with a lender early so you know what to expect as you begin the home buying process.
Common upfront costs when buying a home:
- Down Payment: A down payment is the portion of the sale price that you will be expected to pay upfront when buying a home. Your loan financing will determine the size of the down payment needed.
- Closing Costs: Closing costs are fees required to close on a home. Coverage of these fees are typically split between the buyer and the seller and will likely cover 2% to 5% of the home’s purchase price.
- Reserves: Reserves represent the money you need to have in the bank after you pay your down payment and closing costs. Typically, you will need to have at least two months of mortgage payments saved. Your loan program will determine reserve requirements.
- Taxes: The home’s property taxes may be collected upfront at closing, included with your mortgage bill, or you may be responsible for paying property taxes on your own.
- Mortgage Insurance: If your down payment is less than 20%, a lender may charge mortgage insurance. Mortgage insurance can increase the cost of your loan and is often rolled into your monthly payment.
- Homeowners insurance: Homeowners insurance is required to help you cover costs should substantial damage happen to your home.
4. A lender can give financial advice.
Taking the time to sit down and discuss your specific situation with a local, trusted lender will help you understand how your mortgage choices will affect your monthly payment, your overall costs, and your level of risk.
In some cases, a homebuyer may find they need more time to prepare for buying a home. If needed, a lender can offer advice and steps to take for credit repair, building a cash reserve, and saving for the down payment. Some lenders even offer seminars or classes on preparing to buy a home.
An experienced, local lender will work with you every step of the way preparing you to invest in a home that will be an enjoyment and an asset for your family for years to come.
When you are ready...
Buying a home is an exciting but big decision. By working closely with a Realtor and meeting with a mortgage lender early, you will be prepared and will know what to expect every step of the way.