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Oct 2017

Should I Begin the Home Buying Process with a Lender or Agent?

Ready to purchase a new home? You might be on the hunt for a good real estate agent, but there are a number of good reasons why you might want to press pause and find a great lender first. Having a good understanding of your finances before taking the leap into the home search process can pay off in big ways. Read on to discover why it’s a good idea to choose your lender before selecting a real estate agent.

1. It's your biggest financial transaction

In many cases, buying a home is the largest purchase you’ll make in your life. That’s why it’s important to take the process seriously and make an educated financial decision – and it’s much easier to make a smart choice when you have the expertise and advice of a good lender in your corner.

2. Understand how much house you can afford

There’s nothing more heartbreaking for a potential homebuyer than falling in love with a home, contacting a real estate agent to take a tour, then finding out later on that the home is not within your budget. When you engage a lender at the start, you’ll discuss your financial situation and your lender will be able to provide you with an estimate of what you can afford. There are two different approaches that your lender can take at this stage – a pre-qualification option or a conditional approval option.

  • Pre-Qualification: Some lenders only offer this option, which includes a very high-level review of your finances (a peek at your income and credit report). The lender doesn’t verify any of your income information until you have a property address and a ratified contract, so you’ll only receive an estimated loan amount when you become pre-qualified – and this amount can change significantly once a deeper financial review takes place.

  • Conditional Approval: Often referred to as up-front underwriting, this option allows your lender to carefully review your income and credit report before you begin the home search – providing you with an accurate loan approval amount from the start. This means you can limit your search to only see homes that fall within your actual budget – avoiding the temptation of homes that will end up costing too much.

3. Review down payment options

After your lender has offered a pre-qualification or conditionally approved you for a specified dollar amount, you’ll still want to discuss loan types and down payments. Putting less money down up front means you might face higher borrowing amounts, which can quickly add up and stretch your budget too thin.

Your lender will also calculate your total cost to close on a home, which can include the down payment and other fees you may be responsible for like title insurance, mortgage insurance, credit report fees, and more. Having an idea of the amount of cash needed to close can help you plan ahead and ensure you have enough money in the bank. Having this conversation early on in the process with a lender can prevent any surprises later down the road – and keep you on budget.

4. Get the support and advice you need

Your lender will have the most insight into your financial situation and can answer all of your questions related to the home buying process, including an estimate of the timeline from start to finish. He or she will also have the knowledge and foresight to make suggestions as to when you should lock in your mortgage interest rate.

5. Get off to a smooth start with your real estate agent

If you’ve already done your homework and have a ballpark range of home prices that will work for you, starting the home search process with your real estate agent will be smooth sailing. Let’s face it, agents are busy people – so the more you know about what you want in a house, the easier it will be for him or her to help you find your dream home! Because home price is often a significant factor guiding the search process, providing your agent a maximum price can be very helpful when narrowing your options.

6. Be taken seriously by sellers

Most sellers hope the process of selling their home will be swift and painless – probably not unlike your hope as a buyer! That’s where being pre-qualified by your lender can come in handy.

Showing the seller that you have already taken the time to gain loan approval means you’re serious about buying his or her home and have the financing to back it up.

This can be especially helpful in hot real estate markets, where a complication-free offer is nearly as valuable as an above-asking price offer! As you can see, finding a mortgage lender early on can provide a huge benefit to you as a potential homebuyer.