Is Talking with a Lender Really Important Before I Go Look at Houses?
Absolutely! I’ve been selling real estate for over 20 years, and now, more than ever it is critical that you speak with a lender before you begin your home search. With our current crazy market, what’s available today will not be available tomorrow and more often than not, sellers are receiving multiple offers on their homes and the stronger you can make your offer the better your chances are of getting it.
First and foremost, all sellers want to know that the buyer interested in their home is qualified to purchase it. The only way to show a seller that is to provide them with a pre-qualification or a pre-approval letter (I have a separate blog about the difference between the two). And, the truth is, each home on the market can only go to one buyer. So, to maximize the chance that your offer is accepted, sellers need to know that your offer is serious. Providing them with a letter from your lender shows that you are financially prepared and, in the event that your offer is accepted, they know you have already taken steps to begin the process of purchasing their home. This assurance is one key thing a seller wants to know about their potential buyers, especially in a seller’s market.
When looking for a home, the temptation for most buyers to fall in love with a home that’s outside their budget is very real. So, to save time and possible disappointment, before you start looking at homes it’s imperative that you know your price range, what you’re comfortable with as far as a monthly mortgage payment, how much cash you need on hand for closing costs and the down-payment, and ultimately how much money you can borrow for your loan. Talking with a lender is the only way to get this information.
Based on your current financial situation and what you’re paying for a mortgage or rent at your current home, you should have some idea about what you would be comfortable with as far as a monthly mortgage payment. Talking with a lender can justify your budget or encourage you to reconsider it, because you learn how large a loan you would qualify for based on your financial history.
Let’s face it, buying a house means taking on serious debt, so it’s worth it to know what you can borrow, how much cash you need on hand for a down-payment and closing costs. A lender would also be able to tell you if it would benefit you to pay off certain debt so your credit score comes up so you can get a better interest rate.
With limited inventory, there are many more buyers than sellers right now, and that’s fueling the competition. According to the National Association of Realtors (NAR), homes are receiving an average of 2.9 offers for sellers to negotiate, so bidding wars are very common. You certainly don’t want your offer to be set aside and not even be considered because you didn’t include a pre-approval or pre-qualification letter with your offer. And, telling a seller you will get one, when they already have other offers on the table doesn’t make you look very prepared, so make sure you talk with a lender before you start looking.
Bottom line, in a competitive market with low inventory, submitting a letter from a local lender when you submit an offer is a game-changing piece of the homebuying process. Talking with a lender is perhaps the most productive first step you can take. If you’re ready to buy this year and need a lender referral, please let me know. My recommendation is you talked with a couple of lenders and compare what they have to offer (interest rates, terms, fees) before you start searching for a home. I have two local lenders that I work with on a regular basis and have been referring to them for years. I get amazing feedback about them from my clients. I’m happy to share their contact information with you if you’d like it.