I love research. It helps me learn and validate certain assumptions.
One assumption I’ve long held is that buyers are frightened of the mortgage approval process. A recent report issued by Zillow confirms this: 72% of buyers are concerned about their ability to qualify for a mortgage. They don’t know if, either, they will get the mortgage or they will be disappointed by what they can afford.
It doesn’t have to be that way. If you are thinking of buying a home, here’s what you should do.
First, play with some of the cool mortgage-related calculators online to see how much home you can afford and whether you should rent vs. buy. This will give you an early idea of whether the timing is right and are comfortable with the type of properties within that home affordability range.
Assuming you can afford a home and have determined buying is a better value than renting, it’s time to interview with people who can help get you that loan.
My dad always told me to get three estimates – for everything. I’ve saved a lot of money over the years through that simple advice – from getting a car detailed to pricing out big-ticket purchases. If people spend hours sorting through travel-aggregate websites to save $25 on a flight, shouldn’t home buyers take the extra step and shop (in person, not online) to save thousands on a mortgage?
Here are five keys to finding a home mortgage that you can be comfortable with:
• Meet with, you guessed it, three lenders – maybe one at a bank, one affiliated with a real estate firm and a local independent mortgage company. Bring with you the essentials that you should have when applying for any loan – a valid photo ID, the last 30 days’ paystubs, the last two years’ W-2 forms and signed tax returns, as well as the last two months of asset statements (including cash, stocks, 401(k), property, off-shore accounts – everything). In speaking with lenders, you’ll soon see how each one is different in their customer service, attention to detail and willingness to be flexible.
• Following the initial meetings, narrow the field to two lenders. You can usually tell whether the lender is going to be helpful, fight for the best terms and hit your closing date, or if they are simply punching data into a computer as if on an assembly line. Schedule follow-up meetings to allow the lenders time to verify your information and prepare a report on the structure and types of loans – and, importantly, the total amount – they will offer. (Politely decline to continue working with the one lender you didn’t get a good vibe from.)
• After completing your follow-up meetings, go home and review the calculations – even consider asking an accountant or your math-whiz uncle (someone you trust not to share personal details) to review the numbers – to determine which lender is offering the most favorable terms, that is who is saving you the most and not necessarily who is offering you the lowest rate. Let both companies know your decision. Soon after, the winning lender will deliver to you a mortgage preapproval letter. This simply signifies that your financials are accurate and place you in good standing to shop for a home at a certain price. It does not mean you are locked into any specific mortgage. (Zillow also reported 29% of first-time buyers were denied a mortgage at least once in their process. Why? Probably because they didn’t have their finances in order.
• In a sellers’ market, where multiple offers are often made on the same property, it will be to your strong advantage to have your lender go the extra mile and get the loan fully underwritten (aka, a letter of loan commitment). This is one priceless piece of paper to have when submitting your offer in a competitive environment. The document informs the seller that you, the buyer, are ready to meet virtually any timeline and is backed by a mortgage firm that is committed to paying the loan within about a week of acceptance, pending a clean title and completed appraisal – not the typical 25 to 30 days out. (Getting pre-qualified, typically via an online mortgage company, does NOT signal to buyers that you are serious about making a qualifying offer. Save your time and start with Step 1 above.)
• Ensure in that first interview whether your lender can perform this type of home-buying heroics. Being fully underwritten vs. preapproved can make all the difference between winning an offer in a competitive market or losing out and waiting for the next dream home.
“We take the extra step to have an underwriter, the person who validates your income, credit and asset information, to make sure it’s acceptable,” notes Aaron Haffner, Home Mortgage Consultant with Priority Home Lending* in Seattle and Mercer Island. “Bank statements, W-2, pay stubs and other information are verified by both the mortgage lender and the underwriter who is backing the loan.
“We want clients to win and buy that home on the first shot.”
This is the biggest investment of your life. It makes sense to hop offline and meet with local lenders working with local appraisers to find the right fit for you.
(* Full disclosure: John L. Scott Inc. owns 49% of Priority Home Lending LLC and has its representatives available in many of John L. Scott’s offices around Washington and Oregon.)
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