If you’re looking to explore housing options this summer—or at least get familiar with what goes into the buying process—there are a few initial steps to consider. We caught up with Santa Monica, California–based real estate agent Tara Rodgers for what to research and how to prepare to be in the best position possible.
“One of the very first steps to buying a home is to explore all of your financing options,” says Rodgers. “You have worked hard to save over the years to be in the fortunate position to purchase a home and now you need the guidance from your realtor and a lender. Before we begin the fun task of exploring properties and falling in love with specific homes and neighborhoods, we always suggest that you take the step of educating yourself on all financing options and challenges up front so that you know exactly what you can afford and the steps that you need to get there.”
First, Rodgers suggests getting pre-qualified or pre-approved by a lender. “Not only is this a requirement for financing, it’s also crucial for determining your price range,” she explains. “Through the pre-approval process with your lender, you may discover that your price range is not what you expect. It might be either higher or lower than anticipated. By getting pre-approved first, you can target homes within your price range and not waste time and energy touring properties outside your reach. Obtaining a pre-approval is not difficult. Typically, the initial phone call with a lender will last 20 to 30 minutes, during which time the loan officer can often provide a rough estimate of your qualification limits. Issuing the formal pre-approval letter requires some financial documentation and a credit check as a follow-up.”
Here, Rodgers sits down with Los Angeles–based mortgage loan officer Jonathan O’Donnell of US Bank.
TR: Tell us about the initial phone call. Is there any information that the buyer should be prepared to discuss and have ready?
JO: While you don’t need to prepare for the initial call, the loan officer can offer more immediate feedback if you can provide the following information:
- What type of property are you considering?
- What is the largest dollar amount you would feel comfortable making as a down payment?
- Are you expecting any gift funds from a family member?
- What is your base salary? If you receive bonus or commission income, what was the total amount received in each of the past two years?
- Are you self-employed If so, have you filed your 2022 taxes? You’ll need to know your taxable (net) income for 2022 and 2021.
- Are you familiar with your credit score? If not, you can obtain it for free through various websites like Experian.
- What debts and monthly payments will appear on your credit report? Do you have a car loan or student loan? If the student loan is deferred, what’s the estimated future payment?
- Have you considered a co-signer (a parent or other family member?) If your income isn’t sufficient for the price range you desire, a co-signer may enable you to stretch further.
- Do you have a mortgage preference? Fixed rate, adjustable rate (ARM), etc.? If you aren’t familiar with the various loan options, make sure to ask.
Being prepared to discuss your answers to the questions above will allow for quick and meaningful feedback from a lender and expedite the pre-approval process.
TR: What are the most common challenges that affect the ability to obtain financing?
JR: Some common factors affecting financing can be identified, including insufficient funds for down payment and/or reserves; insufficient ‘taxable’ income for self-employed borrowers, and unknown credit issues. It is so important to investigate the above areas well in advance of your search so that you can take the time to address any challenges before you have your heart set on a home.
3 Tips for When You’re Not Quite Ready for Pre-approval
Accrue Savings
Consider allotting a certain amount of your monthly paycheck to savings. Having funds on-hand for a down payment, closing costs, and other unexpected expenses is crucial.
Be Mindful of Credit
Your overall credit and credit score is an important factor in determining pre-approval. Think about ways to reduce or pay down existing credit debt, be sure to pay bills on time, and establish credit if you don’t already have it.
Maintain Job Stability
There’s something to be said for consistency when it comes to seeking pre-approval. Having a stable job with steady monthly income adds strength to an application.
