Getting Pre-approved for a Loan

This amounts to:

  • meeting, either with a lender or with an independent Mortgage Advisor (someone who can walk you through this complicated process and recommend several lenders for you to choose from).

  • authorizing them (the lender or the Mortgage Advisor) to review your credit history and other financial information
  • based on this review, you will receive a letter documenting how much (i.e. the size of the loan) you are expected to qualify for when you actually apply

(Note: the lender can only tell you how much they would be willing to lend you – not how much you should actually borrow; an independent Mortgage Advisor can provide you with a pre-approval letter as well as help you to think through how much you should reasonably borrow and expect to repay without difficulty. This letter identifies you to sellers and real estate agents as a serious and motivated buyer and any offer you make on a home will be taken more seriously as the result.)

If you would prefer not to take this important step unaided, your real estate agent (see below) can help you to identify either lenders or Mortgage Advisors who have outstanding track records – either way, get this important pre-approval completed before you begin the search process to avoid having to backtrack later

What other factors should you consider before starting your home search? 

Several other factors should also be considered during this preparation phase.  For some you may have a strong preference and for others no preference at all.  However, if you’ve thought a bit about each of these factors beforehand, you will be better equipped to work with your real estate agent and to explore the full range of homes that might be of interest to you.

Location:  region, state, county, city or town
Size of home: number of bedrooms, baths, other rooms, basement, garage, out buildings; needed now and in the future
Size of property: acreage; lot size
Taxes: higher or lower compared to comparable areas
Setting: wooded or open; private or near neighbors;  urban, suburban, rural; etc.
Age of home: new or older
Style of home: classic colonial, split level, ranch, stone cottage, horse farm, etc.
Condition of home: brand new home, move-in-ready home, needs some TLC, complete fixer-upper, “as is”, distressed property (foreclosure, short sale, real estate-owned, etc.)

Once you’ve put some thought into these questions, even if you’re still a bit unsure about some of them, you’ll be in much better position to move on to the next step: Selecting a Real Estate Agent.

What to Do Before You Begin Looking at Homes

Buying a home is the most significant financial decision that some people will ever make.  The thought of finding the perfect home is exciting.  So much so that some will dive right into the search process on day one only to find out later that they have to backtrack once they identify a home they would like to purchase.  Why is this?  It’s because they didn’t do their homework – they were prepared to look, but they weren’t prepared to make an offer and buy, and being unprepared sometimes forces potential buyers to watch helplessly as more prepared buyers move in and buy their dream home out from under them.  Instead, your goal should be to be able to move quickly and efficiently when you find that perfect home.  Here are some basic questions that you should answer for yourself BEFORE you begin to look at homes.   

Why are you buying and is this the right time for you to take this major step?  

There are many advantages to buying a new home.  Finding a place that better suits or enhances your lifestyle, your work life or your family needs can represent the beginning of a new and wonderful future.  However, try to avoid making such an important decision during periods of your life when your job, family, financial or personal situation is creating significant stress in your life.  A home purchase may be the right choice for you, but this may not be the right time to take this step. 

When you feel confident that your reasons for buying are sound and the timing is right, you need to evaluate your finances. 

How much can you afford to spend on a new home and how will you pay for it?

Nothing that you do to prepare for a home purchase will reap greater benefits than solid financial planning at the outset.  Many buyers spend a lot of time looking at homes in a particular price range only to learn later, much to their surprise, that they cannot afford to buy a home in that range.

It is useful to think of this as a two-part process.  The Part One of financial planning begins at home with you organizing your financial information and writing down the answers to several key questions: 

  • What is your current income?
  • How reliable is this income (e.g. how long have you worked in your current position, how stable is this industry, etc.)?
  • What are your current monthly expenses and how do you estimate these would change if you were to buy a new home?
  • What debt do you currently have and what is the schedule for repayment of this debt?
  • How much have you saved in liquid assets (i.e. cash or investments that can be easily converted into cash if needed)?
  • What is your current credit rating (e.g. FICO score)?
  • What is your plan, in general, for paying for a new home (e.g. pay all cash, apply for a mortgage loan, borrow from a relative, etc.)?

Final Walkthrough and Settlement

keys on wooden table

Before handing over your money and accepting the keys to your new castle, you will have the opportunity to do a final walk-through of the property.  This is usually a formality only but remember:  it is the last chance you will have to notice that that chandelier that was promised to you has been removed or that major scratches were made in the new wood floors by the furniture movers.  If necessary, adjustments can be made at closing to rectify such unlikely events. 

Assuming all is well with the walk-through, the Settlement will proceed as scheduled on the Closing Date (usually at the office of one of the lawyers) where all closing documents will be signed and checks exchanged.  Included in the settlement are payments for legal fees, commissions, transfer taxes, agreed-upon adjustments and other closing costs. 

The property title and copies of all documentation will be exchanged.  You will be free to move in on the Possession Date as specified in your agreement.

Selecting Your Lawyer and Securing Your Loan

books sit on a staircase

If you have already worked with a lender or a Mortgage Advisor (as discussed above), the next steps can move forward without delay.  If you have not, valuable time may be lost while you begin the loan qualification process.  Remember:  the sellers are free to accept any other offers and to reject your accepted offer up through the end of the attorney review process.  The best advice:  be prepared to move forward once you have a pending offer and waste as little time as possible.  This means that you should begin to work with your attorney as soon as possible as well. 

If you do not already have an attorney, your real estate agent can recommend several.  This person should first and foremost be someone who primarily practices real estate law, and secondly, who is familiar with the area you are buying into and its particular rules and regulations.  Your attorney will guide you through the possible revisions of the contract, the home inspection process, the Title Search and any other communications you may need to have with the sellers during the attorney review. 

Once attorney review is concluded, each party is obligated by the terms of the accepted contract and you are moving toward your closing date.

Selecting a Real Estate Agent

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Given the complexity of real estate transactions today and all of the potential pitfalls that await even the most experienced of buyers, working closely with a licensed real estate agent is a very wise decision.  This agent should be highly knowledgeable about the areas you have interest in, they should have a demonstrated track record and sales history as well as a major emphasis on customer service.  Because this professional will be your guide to exploring unique properties that interest you, while hopefully avoiding those that do not, you should also look for someone that you get along with and with whom you can communicate well. 

One of the common mistakes that buyers sometimes make is to avoid working with a single agent by instead calling the listing agent directly for any home that they would like to view.  This is a mistake for several reasons.  First, despite what buyers may have heard, agents are not inclined to negotiate lower commission fees if they sell their own listing.  So called ‘dual agency regulations’ place limitations on what they can and cannot do in such situations.  Bottom line:  the listing agent by law has a primary contractual responsibility to their client (the sellers).  You will want someone equally committed to you in your corner as you go through the process of negotiating an offer, submitting a sales contract, getting inspections done, etc. This is one of the advantages of having your own agent working closely with you.  A second reason is that the experience of looking at numerous homes and trying to find the one that you will make an offer on is really a learning process for you – and your agent.  

Each time you view a home and think through what you did and did not like about it, the better your agent understands what you are looking for, and that translates into a more streamlined and successful search experience.  If you work with a different agent each time to go out to view a home, you are depriving yourself of this very powerful advantage that a single agent can offer you.