As you begin your home-shopping journey, there are two first steps. First, connect with a Realtor®. Second, get pre-approved by a lender. Getting pre-approved early on is imperative to the start of your home search because it confirms your budget, and therefore lets you know which homes you can afford. If there are any quirks to your financial file, those can be discovered early rather than in the middle of your deal. Lastly, you will need a pre-approval to make an offer on a home.
A pre-approval is usually valid for 90–120 days depending on the lender. They will review every nitty-gritty detail about your financials and gather supporting documents from you to provide a complete package for submission to the underwriter. The underwriter is the final stamp of approval. If the pre-approval expires, most lenders will need to update supporting documents and update the credit check.
FAQ: If I’m Shopping for Different Lenders, Won’t That Affect My Credit Score?
The answer is: No. If you are shopping multiple lenders in a short period of time, it will only count as a single credit pull. The single credit pull on the scale of qualifying for a home purchase is not detrimental.
The pre-approval process can take 2–14 days depending on your quickly you move. Some lenders can have you pre-approved within 24–48 hours once they have all of the requested documents from you. If you’re shopping for different lenders, then your process might take longer before committing to one. Because of this wide variable of time, it’s recommended to complete the pre-approval step early.
I’ve had buyers wait to get pre-approved until they find the right home, only to find out the home is reviewing offers in two days, and now they are scrambling last minute to obtain a reputable pre-approval. In some cases, they are too late and miss having everything together for the offer date.
Along with finding the best rate, it's also imperative to find a reputable lender who is trusted to perform and close the deal in the local market where the home is being purchased. What good is the rate if the deal falls apart?
Below are the four qualities that I look for in a reputable lender:
No two lenders are the same. No two lenders at the same institution are the same. While the institution is the umbrella of what loan options might be available, the specific lender is the person that is going to make or break your home purchase.
Questions to ask when searching for a lender: How long have you been in the business? How long have you been working in the local market? How many loans have you closed this year? What cities are most of your business? Your Realtor® should have a list of their go-to lender contacts. This is reliable because we Realtors® want to work with those who have provided great service for previous clients, and who we trust to get the deal done smoothly.
A responsive lender is a hard-working lender. This is the most important attribute in my opinion. There are a number of situations when negotiations continue after business hours, or an offer is submitted on the weekend. Having a responsive lender will give you the guidance and confidence needed to make educated decisions quickly, even during off-hours. Responsive lenders pick up the phone or call you back right away. They respond to questions quickly. They will keep you informed every step of the way. They will reduce the stress of the purchase, and make the process seamless for you.
A local lender will understand the local market best and may already have relations with other real estate professionals in your city. When the listing agent is reviewing an offer, they will usually call the lender to verify the buyer's qualifications, and gain trust in the lender’s experience to close the deal. Having a local lender will provide that extra layer of confidence. If the listing agent has closed a deal with the lender in the past, that will speak volumes when reviewing your offer. Local lenders are often familiar with the local condominiums and HOAs. This is valuable because the lender may have recently closed other loans in the building, and already approved the HOA. Or disapproved of the HOA, and this information can be known discovered in advance.
At the end of the day, trust and vibe are essential. Your lender is going to be reviewing your financial profile, gathering every detail, and getting your file ready for the underwriter. If you don’t trust and vibe with the lender, it’s going to be a rough purchase experience. Vibe and trust have no explanation. It’s that gut feeling and rapport that is built early on in the conversations.
FAQ: What About Online Lenders?
They have great marketing and offer great packages. However, in the competitive Bay Area real estate market they carry less weight in comparison to an experienced local lender. Other parts of the country have 45–60 day escrow periods (transaction periods) and the variance of the list price to the selling price is more scaled. The Bay Area works in a 21 to 30 day escrow period and many of our markets have low teaser list prices and high sale prices creating a larger variance of the list to sell price. This is important because, with a local lender, it helps ensure there will be a local appraiser who understands the nuances of the local market, and you will have a lender who can pre-underwrite the loan approval and can compete with the faster escrow periods. Online lenders may thrive in other markets and can be a great refinance source in the future, or after you close on the new home.
If you are serious about buying a home in the next 3–6 months, then take the first step and speak to a lender early. Referrals are a great place to start.