The First Steps To Take BEFORE You Start House Hunting
So, you want to buy a house? GREAT! You’re in the right place.
When you make the decision to go from renter ➡️ homeowner, there’s a lot of steps in between you and that closing table.
If you’ve never navigated the buying process before, it can be hard to know where to start, which is exactly why I’m here so you can take the guesswork and Google searches out of it.
Knowing how to properly navigate the home buying process can save you a ton of time, stress and sanity, which is the ultimate goal.
In this blog post, you’ll specifically learn the steps to take BEFORE you ever start house hunting because a huge misconception is you can simply browse Zillow, schedule a tour and consider it sold.
But as your friend in real estate, I have to tell you like it is and say that is NOT how it works.
To really start the house hunting process and move yourself closer to closing day, there’s a few things that must happen first, so let’s start there. ⬇️
Who To Connect With FIRST To Start The Home Buying Process
STEP 1️⃣: Pre-Approval
The very first step in any home buying process is pre-approval, which essentially is your golden ticket for actually being taken seriously as a buyer in the market.
Without a pre-approval, sellers won’t take you seriously and most agents won’t start fully working with you until this step is taken care of!
Now, that’s not to say you can’t connect with an agent prior to pre-approval!
You absolutely can and in fact, they are often the ones who can connect you with the first person you need to be working with throughout this process and that is: your lender.
A mortgage lender plays a crucial role in a real estate transaction, as they provide the financing that allows you as a buyer to purchase a home.
Your lender will work with you to assess your financial situation and determine your eligibility for a mortgage by gathering your income information, credit history, assets and debts.
Once they have all of this information, they can issue a pre-approval letter to you as a borrower, which states the maximum loan amount that you qualify for.
During this process, they will also be the person who helps you navigate which loan programs you qualify for and which ones will be the best fit for you!
In addition to pre-approvals and loan options, your lender is also the person who will provide all of the information about current interest rates and help you choose between a fixed or variable rate option.
They will also be who determines the specific interest rate for your loan based on factors like credit score, down payment, and the market's prevailing rates.
Your mortgage lender is truly the FIRST person you need to get connected with before you can start the home buying process!
4 Questions To Ask Your Lender
When working with a mortgage lender to secure a home loan, it's essential to ask questions to gather information and ensure you make informed decisions about your mortgage.
Sometimes if people are new to the home buying process, they simply don’t understand how all of this works – and that’s OKAY! You didn’t go to real estate school and you’re not expected to know all of the ins and outs, which is why I encourage you to simply ask what’s on your mind.
If you don’t understand something, ask! If something is confusing for you, ask for clarification! If you’re curious if you qualify for that thing you heard your best friend talk about, ask!
There is absolutely no shame in simply asking questions, but if you aren’t sure what questions to ask, here are a few that can be helpful:
What types of mortgage loans do you offer?
There are LOTS of different loan programs out there and everyone has the chance to qualify for something different depending on your specific situation.
For a breakdown of the most common loan types, click here!
What are the current interest rates?
Interest rates play a HUGE role in the home buying process, so it’s important to be fully aware of the current interest rates for the loan programs you’re interested in, so that you can make informed decisions that you are fully confident in.
For much of 2022 and 2023, interest rates have been on the higher end of the spectrum, which often scares people away.
But as an agent that wants people to WIN regardless of the market, I’ve rounded up some of the top secret weapons available to you during high rate markets.
What is the minimum down payment requirement?
Your down payment is one of the most important aspects of your home buying process and different loan programs have varying minimum down payment requirements.
Your lender can be the one to give you a better picture of what’s required and how certain amounts may affect your loan terms.
How does the loan application and approval process work?
If you’re new to the entire process of home buying, asking for a step-by-step explanation of the loan application process, from submitting your application to closing can be super insightful and help you understand exactly what to expect so you can navigate the entire process more smoothly!
In addition to asking specific questions to gain more clarity, there are a few things you can know before you ever get connected with a lender so you can be ahead of the game and fully prepared to start the process with ease. ⬇️
Everything You Need To Get Pre-Approved
When it comes to getting pre-approved, most lenders are generally going to ask for the same things, including:
Personal Identification, such as a driver's license, ID Card, a government issued card w/ photo, etc. – this one may sound obvious, but it’s highly important as they first and foremost want to make sure it’s YOU and not someone pretending to be you.
Social Security Card/Number – in addition to your personal ID, you will also need to provide your social security number during the application process to further confirm your identity.
Pay Stubs – your most recent pay stubs will verify your monthly income and show proof of employment. If you haven’t started your job yet, but have a letter from your employer stating what you will be earning and what your start date is, that will work as well.
Bank Statements – this will verify your income and show proof of down payment. They will usually request checking and savings statements and lenders will typically look for 2-3 months of history.
Tax Documents, including W-2’s, tax returns, and other tax related documents – you can expect for them to ask for up to 2 years of documents so they can have an accurate picture of your history.
Investment Account Statements – in addition to your bank statements, lenders also want to see all of your assets, including 401k, stocks, bonds, investment accounts, etc.
List of Monthly Debts – this is what will help Lenders calculate your DTI (debt to income ratio). Essentially, they want to know what is coming in and what is going out. This typically includes your “fixed debts,” such as rent or mortgage payments, car loans, student loans, credit cards, personal loans, medical bills, etc. Variable debts, such as your groceries, utilities, entertainment, etc. aren’t included in your DTI.
Rental information and Landlord Reference – if you are currently renting, your lender will likely ask for the names and contact info of your landlord so your lender can verify you’ve upheld your financial responsibility.
Gift Letters – if you are receiving funds from an outside source (i.e. parent/friend) to use as down payment, a gift letter will be required. If you know this is something you will be utilizing, tell your lender ahead of time and they can draft one for you to keep in your file.
Credit Report – this isn’t provided by you, but the lender will pull your credit and keep it in your file once you give them permission to do so. Your credit score will help determine what type of interest rate or loan you can qualify for.
Documents Needed If You’re Self-employed:
If you’re self-employed and want to buy a home, in addition to everything listed above, your lender will also want to see a copy of your business returns and your personal returns.
To keep it safe, have 2 years prior on file and ready to send off to your lender. You will also need a year to date profit and loss report along with your most recent 60 days of business bank statements.
Documents Needed If You Already Own a Home:
If this mortgage isn’t your only mortgage, you will also need to provide your most recent mortgage statement of your current home.
This will show equity as well as your current balance and monthly payment, which will also be used in your DTI calculation.
Once you have met with your lender, provide all of the documents and information requested, they can process a pre-approval and THAT is when the fun really begins, my friend! 🥳
It’s at this point that your realtor will become your bestie and help you get started with the home search based on what you want AND, most importantly, what you qualify for.
But beyond your realtor and your lender, you might be wondering… who else will be involved in this process? Because YES, there are more people involved and all of those people combined are what I like to call your real estate team. ⬇️
The Key People Involved In Your Real Estate Transaction and What They Do
When it comes to real estate, all transactions look different, but generally speaking there are a few people you should be familiar with in addition to your real estate agent and mortgage lender:
Home Inspector
A professional home inspector evaluates the condition of the property and provides a report detailing any structural or functional issues. This inspection helps you as a buyer make informed decisions and negotiate repairs or price adjustments.
Before you make an offer, having the home inspected is CRUCIAL to make sure that it’s safe for living and properly determine if any repairs need to be made before you close and move in.
Appraiser
An appraiser assesses the property's value to ensure it aligns with the purchase price and the lender's requirements. The appraisal is another crucial step for the mortgage approval process and this will be done once you’ve found your dream home and are ready to make an offer!
Title Company
The title company conducts a title search to confirm that the property's title is clear and can be legally transferred to you as the buyer. They also provide title insurance to protect against any title-related issues that may arise.
Escrow Officer or Closing Agent
An escrow officer or closing agent is responsible for managing the closing process, which includes the exchange of funds, signing of documents and transfer of the property title.
They ensure that all parties meet their contractual obligations, so that you can avoid any and all issues and successfully walk away with keys in hand! 🔑
Real Estate Attorney
In addition to a closing agent, some transactions may involve real estate attorneys who review contracts, handle legal matters and ensure that the transaction complies with local and state laws.
Ready To Start The Home Buying Process?
By now I know what you might be thinking… this feels like a LOT! And when you’re reading all of this at once, it definitely can, so I get it.
But what I want you to know is that your real estate agent is the person that works with you from start to finish to make this process feel way less overwhelming and will help you get connected with all of the crucial people needed who have been vetted and trusted.
That’s the #1 reason that you want to work with a local agent who is established in your area and KNOWS 👏🏼 THEIR 👏🏼 STUFF 👏🏼
So, whaddya say? Are you ready to begin the home buying process?
If you’re local to Billings, CLICK HERE to get started and I’ll help you get started on the right foot.
And if you aren’t local to Billings, good news for you – I know people. 😏
Connect here and I’ll get you in touch with a trusted agent in your area to start the home buying process with ease!