Finding the right real estate agent is no different than hiring any other professional. You’re looking for someone with experience, a good working knowledge of the market where you’re looking to buy, and someone you’ll be comfortable working alongside. Interview at least three candidates, ask for referrals and follow up on them. Be sure the agent is properly licensed and don’t be afraid to ask about the commission. A good real estate agent is worth his or her commission, but you don’t want any surprises at the closing.
The relationship between the real estate agents and lenders is an important one. Most agents have a preferred lender, but that doesn’t mean you have to work with them. Many first-time buyers make the mistake of choosing a lender based solely on the current interest rate they offer. Interest rates are ultimately determined by a number of factors, mostly by your credit rating. You want a lender that provides you with a single point of contact. A dedicated loan officer will walk you through the available loan programs and approval process. You want a loan officer that will keep you up-to-date on the progress of your loan and be available to answer any questions.
Ask your lender for a pre-approval. A pre-approval will give you an affordable price range so you can begin your house hunting with confidence. With a pre-approval in hand, the seller is more likely to accept your offer than one from a potential buyer who has not been pre-approved. The seller will also appreciate the fact that you’ll be able to close more quickly since only the home appraisal, title search, and final approval needs to be completed.
4. “I’m afraid I don’t have the credit score required to get a loan.”
Good credit is critical to getting the best interest rate on your loan. The higher your score, the better rates and terms you’ll get. The less risk to your lender, the better your chances of loan approval. Your credit score is a reflection of your ability to pay.
With your permission, your lender can access your credit score and explain it in more detail. If your credit is not where it should be, your lender can provide you with tips to improve it. Don’t be so quick to assume you can’t get approved, though —some embrace products allow for credit scores as low as 580.
The good news for first-time homebuyers is that there are loan programs available from the Federal Housing Administration (FHA) with down payments as low as 3% of the total cost of the home. Some FHA loans also accept gifted down payments. If you’re a veteran, surviving spouse, or active service member, there are some VA loans that require no down payment. If you’re planning to buy in a rural area, ask your lender if you might be eligible for a USDA loan— they do not require a down payment either. Be sure to ask your lender about the availability of grants or other down payment assistance programs available specifically for first-time homebuyers.
A good lender will walk you through the process from pre-qualification and pre-approval through underwriting and closing. This is why good customer service is just as important (maybe more so) as getting the best interest rate when selecting a lender.
This is the most labor-intensive part for the borrower, but it doesn’t need to be scary. Your lender will provide you with a complete list of the items they’ll need. These include W-2s for the past two years, payment stubs from the last 30 days, as well as copies of statements for checking, savings, and any other assets you may have.
You may be asked to provide updated copies of some documents as you near closing. This is not unusual and shouldn’t be cause for alarm. Be sure to ask your lender about the dos and don’ts you should follow while your loan is being approved. Any changes to your overall financial picture can jeopardize your final loan approval.
Working with a knowledgeable real estate agent and the lender can make all the difference in your home buying experience.
As a first-time homebuyer, you have a number of excellent loan options to choose from. If you’re currently renting and on the fence about buying, owning a home can have great tax advantages. And, as you pay your mortgage and/or as property values increase, you build equity in your home that you can tap into for home improvements, pay for education, or use for your retirement.
That’s not so scary, is it?