Know Your Rights as a Home Buyer
Buying a home can be overwhelming, especially if it is your first time. There are so many questions you probably have. What will my monthly payment be? How much do I need for a down payment and closing costs? How do I find the right home?
It might be temping, and feel a little simpler, to just let someone else take away the guess-work and make the decisions for you. You may already know someone that is a lender. Your real estate agent may recommend someone. Or you may just be working with your local bank and assume that they will give you the best offer. Please don’t.
Only you can make the decisions that will guarantee you get the best home for you and your family. That includes your mortgage. Feeling confident about your decisions is important. To help you make better decisions and gain more confidence, we have a four step guide to help you save money on your new loan.
Here’s Your Homework
Before you can look at lender offers, you need to take an hour or two and just read about the home buying process, start to finish, so you understand what is going to happen. The Consumer Financial Protection Bureau (CFPB) is an agency of the federal government and they have written a very good home buying guide.
Freddie Mac is an investor for Conventional loans, and they also have a free home buying course. We encourage you to take a few hours and explore these very helpful resources.
Contact a Housing Counselor
There are over 50 HUD-approved housing counselors across Texas. These counseling agencies provide you with free or low-cost advice and assistance on buying a home, and a variety of other related topics. Contact someone in your local area to help you navigate the home buying process. We are not affiliated with any of them, but we know that talking to a real person is very helpful as you navigate the process.
You can search for a counselor in your city with the link below. You can also chat with someone about buying a home, thanks to the services of the National Foundation for Credit Counseling (we are not affiliated).
What’s a good rate these days?
If you’re the typical home buyer, it’s either your first time or it’s been awhile since you took out a mortgage. Times have likely changed! Rates are impacted by the global economy, the stock market, and inflation. So that you can quickly get up to speed and decide if an offer is even competitive, check out a few offers from lenders using the NerdWallet guide for home buyers, available here. This is a quick way for you to get a general “ballpark” of where interest rates are these days, and if an offer from a lender is competitive or not.
Step 1 – Make Your List of Lenders
So now that you have a high-level understanding of the process, and you have an idea of where interest rates are these days, it’s time to get serious. What we will focus on in these four steps is how you will compare offers from a variety of high-quality lenders, so that you can find very real savings. We do not guarantee that you will save by following these four steps, but if there are savings to be found, this is the easiest way to find them.
Step one is to make a list of 5 high-quality lenders that you will compare offers from. Follow these steps when creating your list:
1. Ask your friends who they used when they got a mortgage. You could post this on Facebook: “I am looking to buy a house. Who knows a good real estate agent or lender?”
2. Ask each of the real estate agents that your friends suggest to provide the name and contact of one or two high-quality lenders. Lenders who offer loans in Texas can do a loan anywhere. Don’t limit your search just to local lenders. Let these agents know that you are looking to also get a competitive price, too. Read client reviews online for these lenders, visit their websites, and pick your top five.
3. Don’t have very many friends with home buying experience? You can use the websites below to make a list of lenders to consider.
Step 2 – Get Pre-Approved with One Lender
Although you are going to consider all five lenders from your list, it is best to work with just one lender to get fully pre-approved. You don’t need to submit paystubs to all five lenders, for example.
So what does it mean to get pre-approved? The pre-approval process begins with a loan application, it includes having them obtain a credit report, and it also requires you to gather supporting documentation to provide evidence to a lender that you are able to qualify for a loan.
While you work on getting pre-approved with your one lender, go ahead and submit an application with each of the other four. Let them pull your credit report. That way you are ready to ask for quotes once you have a home picked out. An application takes about 20 minutes, but the extra 1-2 hours of work is worth the savings that you will find.
Your primary lender may ask you to gather items such as: paystubs, W2s, tax returns, bank statements, 401k statements, and other items. Everyone’s application is unique. Work with a quality lender who can do the work up front to help you know what you qualify for. Once you are done, your primary lender will give you a pre-approval letter. You’ll use this letter when you submit an offer to the sellers of a home you want to buy.
What if you don’t end up going with your primary lender? Don’t feel too bad if you don’t end up using this primary lender. It only takes a good lender an hour or two to help you get pre-approved. If you feel bad for not choosing this first lender, you might mail him or her a gift card after closing to say thank you. But don’t pay $1000 more upfront and a higher interest rate just because someone took an hour or two to help you get started.
Step 3 – Getting Under Contract
Now that you are confident of your ability to qualify for a mortgage, it’s time to interview real estate agents to help represent you when negotiating the purchase of a home. Using a real estate agent’s services are free to you (they are paid by the sellers) and using a professional is very important. Your agent will do so much for you, including:
1) Helping you explore neighborhoods you might want to live in.
2) Deciding what price to offer to the sellers of a home you like.
3) Negotiating with the sellers for any repairs to the home (if the inspection finds any problems).
4) Getting the sellers to possibly cover some of your closing costs.
5) Advocating for you, start-to-finish, throughout and even beyond the home buying process.
Once you have made an offer on a home, and the sellers have accepted your contract, you will send this contract to your primary lender (the one who pre-approved you). You will also send it to the other four lenders from the list you made earlier.
Step 4 – Choosing Your Lender
To recap, you have taken the time to:
1) Select five quality lenders
2) Submit an application with each and had them pull your credit
3) Get pre-approved after submitting your income and asset documents
4) Work with your real estate agent to find a home
5) Get an offer accepted by the sellers of a home you want to buy
6) Send your sales contract to each of the five lenders from your list
Now it is time for the moment of truth. Which lender will give you the best offer for your loan? Within 3 days of you sending the lenders your sales contract, they are required by federal law to send you what is called the Loan Estimate.
To make your job of comparing offers easier, ask them to all quote you the same interest rate for the same type of loan (“FHA, 30-year, fixed-rate” or “Conventional, 20-year, 3% down payment” for example). Lenders can offer you several different rates for the same loan type. Each rate will cost a bit more or less up front.
By having all five lenders quote the exact same rate, you can easily find the lender with the lowest lender fees. You might ask all lenders to quote you for a loan with a 4.50% interest rate. On the Loan Estimates from each lender, you’ll see lender fees under Section A. Add up all of these fees, and the results might look something like this:
Lender 1: $900
Lender 2: $800
Lender 3: $750
Lender 4: -$100
Lender 5: $550
Lender 4 is giving you a credit of $100, while lender 1 is charging you $900. That’s a savings of $1000 just by choosing lender 4.
You may choose to pay more up front, if you feel the lowest offer will not give you the quality of service that you need. Just keep in mind: if you pay more, you should get more service in return. Don’t pay more money and not get something in return.
Want to talk to a real person?
If all of this was a bit confusing, or you want to talk to a real person, we can help you get started. Learn more about our Best Offer Guarantee. Send us an email to get started: ben@mortgagemission.org