Pacesetter Homes Blog

New Call-to-action

5 Reasons to Talk to a Lender Before House Hunting

Posted by Dave M. on Mon, Jan 28, 2019

As you start to get settled in your adult life, you may feel that the next step is buying a home. You’ve probably even started saving up your down payment and browsing the for-sale listings. 

Stop right there!

You may think there’s no harm in shopping around before you’ve talked to a lender. The truth is, you might be setting yourself up for disappointment if you fall in love with a home before knowing how much you can afford. It may not be time to officially take out a loan yet, but to accurately budget for your new home, speaking with a lender first is very beneficial. 

Below are some key reasons why you should take this step first before you start your home search.

1. Knowing You’ll Qualify iStock-627196720

Perhaps the biggest advantage of talking to a lender is knowing whether or not you’ll qualify for a loan. While most people who have gainful employment and a sizable down payment will qualify for a mortgage, there are certain situations that make it more difficult. 

For instance, young people often have lower credit scores simply because they don’t have a long enough credit history. Those who have unique job situations, such as contract or seasonal work, can also have a more difficult time qualifying for a mortgage.

It’s important to note here that there are two different stamps of approval a bank might give you. The first is called a pre-qualification. In this case, the bank looks at your stated income and gives you a loan amount that they’re likely to lend you, assuming that your data is correct. This is a good starting point, but it’s not an official answer because the lender isn’t verifying your financial information.

With a pre-approval, the bank requires you to submit pay stubs and tax returns. It’s more official, and it gives you a more accurate look at your ability to get a mortgage. Whether you’re buying a new home or a resale home, you’ll need the pre-approval.

2. Setting Realistic Expectations

A visit to the lender also allows you to set more realistic expectations. When you’re playing with mortgage calculators on your own, it’s easy to overestimate how much is affordable. Banks use a formula based on your income and the amount of debt you have to determine how much money they’ll lend you. In some cases, this amount may be less (or even more!) than what you think you can afford.

Mortgage calculators are useful tools, but if the one you’re using doesn’t factor taxes into the equation, you may not get accurate results. Once you get the actual numbers from the bank, you’ll be able to better determine what home style options to consider and focus on searching for homes that are in your price range. 

3. Crunching Real Numbers iStock-179001693

With a mortgage pre-approval, you’ll also learn the interest rate you’ll get on your mortgage. Again, this will give you a clearer picture of just how much you can afford. 

Most people start estimating their mortgage costs using the advertised rates. These are typically low rates intended for people with very good credit. They’re not necessarily the rates you’ll qualify for when you apply. A half-percent difference might not seem like a big deal, but if you have a $300,000 mortgage, that’s almost an extra $100 difference each month. If you’re off by more than a half-percent, the difference is even greater.

4. Improving Your Position

Having a mortgage pre-approval puts you in a strong position to make an offer. Sellers are certainly more likely to accept an offer from a buyer with pre-approval because they know that the offer is less likely to fall through at the last minute. 

If you want a brand new home, you'll be a step ahead in the buying process with a pre-approval. This is especially true if you work with one of the builder's preferred lenders. They have plenty of experience in the industry and you'll appreciate their wealth of knowledge during your smooth approval process.

5. Smoother Purchase Process

Finally, when you actually start to go through the purchase process, having a pre-approval from the lender makes things a lot easier. The bank already has most of the paperwork it needs to make a decision. You’ll simply need to submit your most recent pay stubs. As long as nothing has changed since you applied for the pre-approval, you won’t be surprised by a big rate increase or qualifying for less money than you wanted.

Visiting a lender before you start home shopping might seem like a hassle, but it’s a very important part of the process. When you have pre-approval, you are able to get a more realistic assessment of your situation and be able to shop with more confidence. 

Topics: mortgage & financial, pacesetter homes Regina, livemore, Pre-Qualification, Mortgage Lender, Mortgage Broker