How to Buy a Home - Step Two: Find Your Financing

In case you missed it, in our last blog post, we talked about how to know if you are ready to buy a home. In this blog post we talk about the first step in buying a home- which is securing financing.

Financing will make or break a deal

The single most important distinguishing factor between an attractive or a weak offer is the type and quality of the financing. Knowing this, it makes sense that the next step on your journey toward homeownership is getting your financing squared away. This typically means either getting pre-approved for a traditional mortgage or getting Cash Approved™ with Accept.inc. A buyer who has the full cash amount in their bank account doesn’t need to worry about this step.

Two options: Pre-approved or Cash Approved™, what’s the difference?

When buying a home there are two things to keep in mind: first, how to win the home, and second, how to pay for the home once it becomes yours.
A mortgage is a financing instrument used to pay for a home. Unless someone has the cash to cover the entire purchase, they will need to apply for a home loan.

There are two options to securing a home loan:

• Getting pre-approved for a traditional mortgage.
• Getting Cash Approved™ to make an all-cash offer that is backed by an Accept.inc mortgage.
  

In the traditional mortgage process, a loan pre-approval happens upfront. The underwriter doesn’t start the process of review however, until the home has gone under contract. This can take up to 4 weeks to complete. With an Accept.inc all-cash offer, the underwriter reviews the file before the home goes under contract, which can be done in as little 72 hours. This can be done as soon as you are ready to apply for a home loan. Both a pre-approval and a Cash Approval™ will give you a way to finance the home. The difference is in the strength that each brings when presented as part of an offer.

Before you can pay for the home, your offer needs to win

With a Cash –Approval™, you are not only approved for a mortgage before you submit an offer on the home, but you receive an enormous additional benefit: you are also approved to submit an all-cash offer! Similar to how a 0% credit card works, Accept. Inc will front the cash for any borrower who they have approved for a mortgage at no additional cost. This enables you and your agent to shop and negotiate with the power of cash. In case you didn’t read our blog on why cash is becoming the new standard; cash offers have a 4X higher win rate on average nationwide. If you want an overview of just why cash offers are stronger, check out the post we wrote on Why Cash Offers are Quickly Becoming the New Normal.

Remember: First you need to win the home. Then, you need to pay for the home.

Ignorance is not bliss when it comes to securing financing

Many people procrastinate on securing financing before house hunting. Perhaps because they are nervous of hearing bad news like they won’t qualify for the home they love... or any home. Perhaps it just seems too complicated or daunting. Shopping for a home without applying for a home loan is like shopping at the mall without your wallet. If you’re serious about making homeownership a reality, you will want to find out your purchasing power (how much of a loan or cash offer you are approved for) before going any further. With a traditional mortgage pre-approval, you still may not fully know your buying power after pre-approval. If you’re curious as to why, read our previous article on the risks offers with pre-approval letters face. If you apply for financing and are not approved, don’t fear. A good Loan Officer (or Approval Specialist if you choose Cash Approval™ from Accept.inc) should give you a roadmap, custom-tailored to your finances and timing to help you obtain the approval you need.

Decide what is a comfortable monthly payment

You will want to do the math on what your monthly mortgage payments will be, based on your down payment, before you begin looking for a home. While a lender may tell you that are approved for an even larger monthly amount, only you know what is truly comfortable and safe to maintain. Being able to afford the monthly payment is the #1 factor you are committing to when purchasing a house. A good rule of thumb is that your monthly payment should be approximately 30% of your monthly salary.

Pro-tip: Don’t forget about these costs in addition to your principal when calculating total monthly payment:

• Don’t forget about maintenance
• Don’t forget about interest
• Don’t forget about taxes
• Don’t forget about insurance
• Don’t forget about Homeowners Association dues (HOA)

Prepare for your prequalification call or application BEFORE you look for a home!

Imagine this, you’re at an open house that you happened to drive by on a beautiful crisp Sunday morning as you were coming home from picking up bagels. You know your realtor said not to go to any of these without them, but it’s ok, you’re not going to stay. Just a harmless pop -through to pick up some information. As you walk through you notice that there are high ceilings, natural light, a split open floorplan. Hold on....you actually like this house! Once, then twice, you make your way through the house to the backyard. No way! A pool?! You do another lap of the home and ask the realtor for a price sheet. You’re surprised and delighted to see the price is only slightly above your budget! How can this be? In this neighborhood?

The realtor tells you the owner is going through a messy divorce and wants to parachute out immediately. They tell you that if you’re interested, you should put in an offer today because they are reviewing a short list tonight. Two hours later, you and your wife are combing the house with her parents on FaceTime, taking pictures of the walk-in pantry and videos of the backyard.

You’re in the three-car garage measuring how many feet the third bay is, when your realtor comes running in frantically waving her cell phone and sticking it in your hand. “Here, this is Mark, he’s a loan guy, tell him your social. He’s gonna ask you some questions so he can get us a pre-approval letter for the offer I’m writing up in my car-HERE, say hi,” and with that, she shoves her iPhone up to your ear. Like a zombie with a craving for open floor plans like brains, you jump right in. “Hello, Marcus?” you reply. “Heyyyy man, what’s up? Yeah, I'm good man, I’m good. This home has a three-car garage! Yeah, I got 15 minutes right now, sure!” Mark/ Marcus/ the loan guy/ the mortgage bank guy, what’s -his-face, proceeds to ask you all kinds of questions about your income, your debts and you ramble off a bunch of quick numbers. He says he has everything and just needs to speak with your wife.

Next thing you know, she’s talking to Marco while you’re FaceTiming your mother-in-law, showing her the Koi pond. (..Friends, this is not the time nor place to try to and remember the interest rate on your student loan) Sadly, this is how many pre-approvals happen. On the fly, with a stranger, under and the pressure of a dopamine rush brought on by closet barn doors and subway tile backsplashes. Remember how your realtor wanted you to prequalify in your first meeting and you said you’d think about it? Well, here we are...

Two things you can do to be proactive in your home loan application:

First, find a lender you want to speak with by doing your own research or asking for referrals. Talk to other people (including your realtor, if you already have one) who have had positive experiences. A lender plays a critical role in your home purchase, just as much as your real estate agent. Remember, you are assembling a dream team. It is pivotal that your agent and lender communicate and work well together in case your transaction hits bumps in the roads (and undoubtedly it will.)

Some things to keep in mind when choosing a lender:

• They are trustworthy, transparent and have a good reputation
• Will they help you win? This is a good time to weigh the benefits of an all-cash offer
• Your realtor has confidence in them and wants to work with them
• You are comfortable talking with them
• They are knowledgeable about interest rates, discount points, types of mortgages, and lending guidelines
• They are creative and strategic and don’t give up easily, they are skilled in the art of finding a solution
• They call you back in a timely manner and have flexible hours of operation –you can always get them on the phone when you need them
• Customer service, customer service, customer service...

Pro-Tip: Don’t wait until you’re in the middle of a conversation with a lender to figure out the answers to the following:

• Understand the difference between a pre-approval and a CashApproval™

• Understand that while there is convenience in filling out an online application, there are benefits to building a relationship with a loan officer and troubleshooting your approval through verbal conversation
• Understand that all answers you give will have to ultimately be verified by the underwriter with documents as evidence
• Have copies of your tax returns and/or W2’s or 1099’s, pay stubs and bank accounts in front of you for easy reference
• Know the specific balances and interest rate of your credit cards and other debts- make a list if needed-this is not a time to wing it!
• Be prepared to have your credit report pulled. This will be a hard pull, but rest assured that pulling your credit report with multiple lenders to shop competitively for a home loan will not lower your FICO score dramatically.
• Be prepared to back up what you say in the call with paper proof

Move forward with confidence, and don’t settle for less than either a pre-approval letter, a Cash–Approval™ letter or... a plan to get one

At Accept.inc, we upgrade offers to cash, because we believe that anyone who can qualify for a mortgage deserves an equal chance at home ownership. We offer homebuyers who qualify for a mortgage the ability to make all-cash offers on a home at no extra cost. This gives sellers the speed and certainty they seek, while giving buyers the strongest chance of winning. In a competitive real estate market, nothing will push your offer to the top of a seller's list faster than offering cash. Because there are no additional costs to get Cash Approved™ and buyers are free to work with any real estate agent they choose, many say Cash-Approval could one day replace the traditional mortgage pre-approval letter. We know we’re a little biased, but whether you decide to go the traditional mortgage route of getting a pre-approval or a Cash Approval™ with Accept.inc, we still encourage you to find your financing first for that dream home.

Time is of the essence in real estate. Do yourself a favor and find out your spending power from day one. Make it step one, not nine of your real estate search. The sooner you start, the faster you can get into your dream home.