Buyer Step # 1: Financing
The most seemingly logical step to take once you’ve decided to purchase a home might be to start looking at and touring properties. However, the first step in the home-buying process is to secure financing. Financing entails speaking with a mortgage originator or bank about your goals, and how you can achieve those realistically. The financing process is one of the most matter-of-fact undertakings in real estate, as it’s not influenced by opinion or any subjective factors that can benefit or detriment your ability to qualify for a mortgage. It’s wholly dependent on your current financial standing: how’s your credit, income, debt, assets, and liabilities? A combined analysis of these and other metrics by a professional mortgage lender will render the loan amount you qualify for — the maximum amount of money the bank can lend you for the home of your dreams. Having this information facilitates the search process, and helps the buyer set realistic expectations about the home they can afford.
There are many reasons to secure financing and obtain a letter of pre-qualification before touring any homes. As aforementioned, it helps set a realistic expectation:
A first-time homebuyer might start looking at and touring properties listed for $280 thousand dollars. Once they start and complete the financing process they find out they qualify for a maximum of $240 thousand dollars. Having seen the more expensive homes they’ve done a disservice to themselves: the homes they qualify for aren’t as big or in the area they prefer. Their expectations have been tarred.
A letter of pre-qualification also serves as a compass to your real estate agent. When making a search for potential homes, the most important metric for an agent and their buyer is the price range. A buyer might have a maximum price they don’t want to exceed, but without knowing the loan amount a lender is willing to supply, they are both swimming blindly in a broad sea of possibilities. The real estate agent could search for homes between $250k and $290k, but neither the agent nor the buyer know whether this is an appropriate range. Other factors like a monthly homeowner’s association (HOA) or community development district (CDD) payment, can influence a buyer’s ability to qualify for a specific home, as these become part of their monthly expense. A lender is able to break these down and clarify a realistic budget as the buyers begin their search.
There are many steps to purchase a home and they’re meant to be done through an organized process, not at random or erratically. If you’re serious about becoming a home owner, you first need to find out if you qualify for a mortgage, and what that mortgage will look like if you do. Seeing homes without securing any type of financing first is not in anybody’s best interest, and most of the time turns out to be a misuse of time and effort. This is true specially in the current market, where many properties are listed for no more than a week before they go “pending” – when a seller and buyer have agreed on an offer and started the process of closing. Since every offer needs to be presented with a letter of pre-qualification, not having it will prevent a deal from taking place.
In real estate, the best agents know to be proactive; Confide in us and trust that we have your best interest at heart.
If you have any questions pertaining to this topic or any other regarding real estate, please reach out to me. I’ll be happy to further discuss your goals and what are the best steps forward.
