So you’re ready to buy your first house – congratulations! You’ve watched HGTV so you know that:
1. You only get to look at three properties.
2. Your agent can just call the other agent with your offer, and let you know at the café if the sellers accepted your offer at $70,000 less than the asking price. What paperwork?
3. There’s nothing else to it. You finish your coffee cake, and then six weeks later you have a bunch of family and friends over to eat stuff that you’ve awkwardly chopped on a tiny cutting board left over from their tiny apartment. (Have you ever noticed that?)
Like I said, you’re ready!
Step One: Money
I know you know it’s not that simple. You’ve seen how places get featured on a certain blog, and then there are 64 offers in 48 hours and 63 people are super bummed that they didn’t get the house, especially the ones who shelled out $450 for the pre-offer inspection that would give them a leg up on the poor fools with the inspection contingency. (And yes, it did make those offers look better than the ones offering less money, but not as good as the other guys’ offers who did the inspection AND offered a bunch more money.) So you know what’s up. You’ve been scrolling through properties for a long time, but now you’re ready to buy. Are you though?
The higher your credit rating, the lower your loan rate, generally. The more you look like a financial risk, the less generous the lender. Before you’re ready to get a loan, spend some time cultivating your credit. Check your scores from the three reporting agencies (Equifax, Experian, and TransUnion), and send them old-fashioned letters by mail to ask them to remove anything derogatory on your report. If family is kicking in some cash, have them send it before you need it, because any big gift added to your checking account in the last 30 days or your savings in the last 90 will trigger the bank’s need for a paper trail. That means Mom gives you money and you gift her with stuff to fill out asking where she got that money in the first place. So no last-minute gifts.
Also, stop buying. If you’re putting a lot onto your credit cards, when you go to a lender and they pull your credit report, your debt-to-income ratio can disqualify you for a loan in general, or for specific properties (the latter of which might be for a condo, where they add in monthly condo fees as part of the debt side). Unless you’re independently wealthy, make your coffee, take your lunch, pay down your debt, and shred all the credit card offers you’re suddenly going to get.
Step Two: Also Money
So now you’re all cleaned up and ready to get a loan. We’re not even to looking at houses yet! We still need to get you pre-qualified, because as your agent, I’m not wasting our time checking out places you think you can afford and get your hopes up about, but then it turns out that you can actually afford less, and then you’re sad, and I’m sad for you.
You can go to whichever lender you like, but bear in mind: will they answer when you or I call, or get back to me fast when I ask them for a pre-authorization letter in an amount less than your maximum budget so we’re not playing all your cards? If they’re too slow to respond, it could cost you your house of choice if we’re up against an offer deadline. If something happens and your loan offer needs to be adjusted, will they care enough about your business to make it happen and fast? Are they in the same time zone so that if something goes sideways at a 10 a.m. closing, they’re not still home in their PJs in Washington State?
Don’t turn up your nose at an adjustable rate – they can be a far better deal than a traditional 30-year fixed. (Do not listen to your parents if they say to always stick with the fixed rate – they say that because that’s what their parents said.) Look for deals such as closing cost assistance and ask for a better rate. You can actually do that!
Look for the next steps in the May edition, Real Estate Matters: Buying, Part II.
Heather Schoell is a Capitol Hill REALTOR® with Berkshire Hathaway HomeServices PenFed Realty and can be reached at the office at 202-608-1882 x111-175, by cell at 202-321-0874, or at email@example.com.