Home Buying 101: Step 3

 

Home Buying 101: A Step by Step Guide to Buying a Home.

Step 1 | Step 2 | Step 3 | Step 4 | Step 5 |

Step 3: Get Pre-Approved.


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Getting pre-approved early in the home buying process is important for a few reasons:

  • Knowing how much you’re approved for will shape your home search. You don’t want to waste your time looking at homes you can’t afford to buy. Getting pre-approved arms you with all the information you need to set a home buying budget.

  • You’ll be ready to make an offer if you find the right house. Pre-approvals are almost universally required by Sellers and Listing Agents for your offer to be considered. There’s nothing worse than finding the home of your dreams only to watch it be sold to someone else while you’re waiting for your pre-approval letter.

  • You’ll establish a relationship with a lender. A lender is a great resource as you go through the home buying process. Establishing a relationship early with someone you’re comfortable with will be a huge help down the road.

  • You’ll be ahead of the game when it’s time to process your loan. After your offer is accepted you’ll have already provided a lot of the documentation your lender needs. This will make your job a lot easier when it comes time to finalize your loan.

So how does the pre-approval process work?

  • You’ll have a conversation or in person meeting with a lender.

  • They’ll ask you for documentation. They usually request:

    • 2 months of pay stubs

    • 2 months of bank statements

    • 2 years of tax returns

    • 2 years of W-2’s

  • Your information will be put into a computerized underwriting system, often known as a “Desktop Underwriter.” This will give your lender an approval, a decline, or a conditional approval. If a conditional approval is issued your lender may require more documentation before they can send you your pre-approval letter.

  • Most banks can usually issue a pre-approval letter within 1-5 days after you begin the process.

Who should I use for a Lender?

  • It’s important to note that you’re not obligated to use the lender that you get pre-approved with. In most situations you’ll have a “shopping period” of around 5 business days after your offer is accepted to finalize who you want to use for a lender.

  • If possible, use a local lender. Finding a lender and underwriter who lives and works in the Puget Sound Area is important because there are many local customs, practices, and laws in the real estate industry that vary from state to state. Out of state lenders often don’t know about our local practices and this can result in a delayed process or even mistakes with your loan. For instance, in many states the Buyer pays a “transfer tax.” In WA the Buyer doesn’t pay any taxes but the Seller pays an Excise Tax. Out of state lenders will often try to charge their borrowers this transfer tax even though it doesn’t exist in WA.

  • If possible, use a small bank or lender. Not always, but usually smaller banks have better customer service, request less documentation, and have greater flexibility to get your loan done. Think about your experience the last time you called a call center. This is often what you’re dealing with when you use a larger bank for a mortgage.

  • Get recommendations. Ask friends, family, co-workers, and your agent who they’ve used. When you ask for the recommendation ask them what the best part and the hardest part of working with that lender was. Ask them if they closed on time and if the rate and fees they were quoted ended up being what they got in the end. For our recommended lenders visit Locality’s Recommended Lender page.

 

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