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Most people miss a key step before going to open houses and finding a real estate agent: talking to a mortgage lender.
Not only does this help you better understand which loans are available to you, but it also makes you more attractive to sellers and real estate agents.
Here are five reasons you should talk to a mortgage lender before you begin the house-hunting process.
1. It sets realistic expectations
There’s nothing worse than finding your dream home, then realizing that it’s just outside your financial reach. Zero-percent down loans are available only if you qualify for a Department of Veterans Affairs or Department of Agriculture loan, and putting less money down can substantially increase your borrowing costs over time.
Plus, just getting an online quote isn't the same thing as being preapproved. A preapproval letter proves to both real estate agents and sellers exactly what you can afford.
2. You can still shop around
Just because you’re preapproved for a loan doesn’t mean you have to stick with that lender. You can continue to apply for loans from other lenders — just be sure to collect your offers on the same day, since mortgage rates change every day.
To keep your credit score strong, do all of your loan shopping over a short period of time. Typically, your credit score gets dinged every time a company — like a lender — pulls your report. But if you apply with several lenders within, say, two weeks, all the inquiries will count as a single inquiry.
3. It helps catch sellers’ eyes
Coming in with a preapproved loan offer, whether you’re talking to a real estate agent or a potential seller, proves that you’re serious. You want to present yourself as hassle- and complication-free, especially in competitive real estate markets. You aren’t “just looking” and a seller can trust that you can actually sign the check.
4. You’ll finish the paperwork earlier
You’ll need a lot of paperwork to complete the loan, including tax returns and W-2s from the past two years, pay stubs for the last 30 days and recent bank statements. Starting the document-collection process earlier will make it easier when it’s time to finalize your loan, and it reduces the likelihood that the seller pulls out because of mortgage complications.
5. It helps you know what you’ll pay at closing
That the first check you write is going to be for more than just your down payment. After you apply for a mortgage, the lender will give you an idea of how much origination fees, title fees and appraisal fees will cost. While the seller often pays at least some of the closing costs, your share might still be as much as 3% to 6% of the loan amount.