If you’ve decided to hit the open houses and really look for that perfect home in the coming months, now is the time to start preparing yourself for the process. With the D.C.-area real estate market on the heels of a rather competitive 2019, you want to be sure you’re ready when you find—or even stumble upon—that perfect home.
Although it’s not quite as fun as touring homes and planning to buy new furniture to fit your new digs, the first thing you need to do is secure a lender who will be best to help guide you through the financial side of the purchase process. There’s a little more to it than picking some random lender, so we thought we’d give you five important things to keep in mind when finding and working with a lender.
Disclaimer: We are not lenders and do not claim to be. This also should not be considered financial advice to readers. This is general information for readers about finding and working with lenders. We make no claims or guarantees as to anyone’s creditworthiness or ability—or inability—to receive a loan. Any questions regarding an individual’s ability to receive a loan is between the individual buyer and lender.
1. Be familiar with types of lenders. There’s no quiz at the end of the process or anything, but it’s best to familiarize yourself with the types of lenders who are out there. Here’ s a quick look at the most common lenders you’ll see:
Traditional Banks—Just what they sound like, banks that loan you their money and hold onto your mortgage. You’ll likely make payments to them for the life of the loan. Sometimes they may sell your loan to another entity, but other than sending payments to a different address, your loan terms will stay the same.
Correspondent Lenders—Not unlike traditional banks, correspondent lenders will loan you their own money, but they will likely sell your loan shortly after closing. They typically work with many different financial institutions, which can allow them to offer more options and oftentimes offer some of the most competitive lending rates.
Brokers—These lenders do not loan their own money, they simply help borrowers find the right loan for their needs, and then their fees are built into loan costs.
2. Shop around. Not all lenders are built the same way. Contact several lenders and find out what they offer. Oftentimes, just getting a feel for how they respond on the initial contact is instructive. Tell them you’d like to buy a home and want to see what they offer. Ask questions about availability and their response times to you. Ask about fees involved and what kind of rates you might be able to get for a loan. Some lenders offer similar loan products but rates can be quite different from one lender to the next. Compare lenders. We’re happy to make recommendations.
3. Be responsive. Remember, the lender is likely looking to loan you hundreds of thousands of dollars. As such, you have a large responsibility when it comes to the approval process. Be prepared, because they will ask you for some very specific financial information. It’s typical for them to run a credit check—oftentimes more than once in the process. They will also likely ask for two years of income tax return information, an accounting of your assets and debts, a few months of bank account statements, and pay stubs from your current job. Depending on the approval process and the length of time between applying for a particular loan and the actual settlement date of your property, don’t be surprised if they ask you for some of the same information. It’s just part of the process. Don’t make any major financial moves when going through the loan process, either. Don’t open new credit, make large purchases, or even close lines of credit. Consult your lender on anything out of the ordinary you might be doing financially, because even something you might think can help you in the loan process could hurt. Be ready, willing, and able to cooperate. It will make your journey to settlement day a lot easier.
4. Get a strong pre-approval. When making an offer on a home, you need a pre-approval letter from your lender to accompany the offer. It doesn’t guarantee you’ll get a loan, but indicates that you’re likely to get the loan you seek based on the information you’ve provided to the lender. Don’t get caught up in semantics over pre-approval vs. pre-qualification. It all depends on the lender. Of course, the best situation you as a buyer can be in is for your lender to send your application completely through underwriting before providing a pre-approval letter. But even if that’s not possible, it doesn’t mean you can’t have a strong pre-approval. If your lender simply asks you what your salary is, runs a credit check, and then generates a pre-approval letter for you to submit with an offer, turn around and run. They’re not working in your best interest. At minimum, ensure your lender checks credit and has received documentation noted above—pay stubs, income tax returns, savings, checking, asset information, and debts. Then make sure when they provide the pre-approval letter, the letter explains the documentation they reviewed to get you pre-approval. Just remember, nothing is totally approved until you go through final underwriting and you actually receive the loan.
5. Ensure your lender is responsive. In addition to you being responsive to your lender, ensure the lender is responsive to you. Particularly in the competitive world of D.C.-area real estate, it’s crucial that your lender is reachable on very short notice. When you’re ready to make an offer on a property, the lender should be able to generate a pre-approval letter for that specific property at the specific offer price. That means that if you find a home on Saturday afternoon and need to immediately submit an offer, you’ll be able to reach your lender and get a near-immediate response and the letter you need. Again, if they can’t be available when you need them, it might be prudent for you to look elsewhere.
Don’t leave your lender choices to chance. Do some homework, ask questions, and find the lender that’s a good fit for you.
Christopher Prawdzik, an Accredited Staging Partner® Real Estate Agent, and his wife Angela Logomasini are licensed Realtors® with Samson Properties in Alexandria. Operating as D.C. Region Real Estate, they serve the Virginia, Washington, D.C., and Maryland real estate market and offer comprehensive real estate services, including 4½% full-service listings.
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