Homebuyer Basics Part 2: Financing and House Shopping
Now that you and your counselor have discussed how much house you could potentially afford, it may be time to try to qualify for a loan! It is often recommended to try a few different mortgage brokers or banks to see what you can qualify for.
Finding a Loan Officer
The qualification process can begin with a website such as this from Minnesota Housing Finance Agency (MHFA). With this site, you can type in different criteria to help find a “loan officer” or lender that is right for you. What is nice about this particular site is that the lenders listed are always well-experienced and have worked with a variety of clients over the years. There are even some loan officers that specialize working with first time homebuyers. This can be a definite advantage to have a savvy loan officer on your side, as they often know of a variety of loan products and potential down-payment assistance programs that are geared towards first time home buyers.
From the names that you have generated from the list, you can then reach out to lenders. It is recommended that you reach out to at least 3 to set up an introductory conversation, which is sometimes referred to as a “lender interview.” In this interview, you can get a feeling of the loan officer or institution that they are working for, to see if it is someone you would be comfortable working with moving forward.
If you do find someone that seems like a good fit, they can try to “pre-approve” you for a mortgage. The process of pre-approval is where they look deeper into your finances, often pull a copy of your credit report, and get your proof of income. If all goes well with this step, then you will hopefully be pre-approved for financing. It should be noted that is not a guarantee that you will in long-run be financed, but at it at least shows prospects that your finances align with what the bank is expecting.
Right around this time you may be advised that you take a first time homebuyer education course, which is often actually a requirement for financing. Taking a first time homebuyers’ education class is always a good idea to help you be prepared for homeownership. In Minnesota, the Minnesota Homeownership Center is a great resource for finding classes, pre-purchase counseling services, and a wealth of valuable tips and information. To find providers in another state, visit HUD’s website.
The Buying Process
Now that you have been pre-approved for a mortgage, you can consider this your ticket to start to looking for homes. Working with a real estate agent is not required, but it is recommended.
Let’s now fast-forward through the home-search process, which can be long and arduous, and pretend you have found the house that you want to buy. You put in an offer, and your offer was accepted! Yay! This is when the bank officially takes the steps in getting you qualified for a mortgage. This is when they will look very carefully at your financial situation again and likely pull a fresh copy of your credit report and get fresh income documentation.
If all goes well here, then congratulations! You have just gotten a mortgage that allows you to buy a house! Once you sign the avalanche of the closing documents, that house is now your new home!
When Things Don’t Go as Planned
It would be careless of me to say that this process of financing is always as smooth as laid out above. There are occasionally times, much to the frustration of a potential homebuyer, seller, and real estate agent, that underwriters from the bank, for whatever reason, decide to back out of financing. This of course can greatly interfere with the home purchase process.
If financing falls through, all is not necessarily lost as there may be alternate funding sources that can finance you. It might be a bit of a scramble, but it can be done. Most experienced loan officers have dealt with almost every imaginable scenario, so it is likely that they have some other potential avenues to explore. If it comes down to it that the sale unfortunately falls through, as devastating as that can feel at the time, another opportunity almost always comes around eventually.
There are, of course, numerous other nuances to the homeownership pursuit which were not able to be covered in this format. I hope that this crash course in the home buying process is at least a glimpse into a potential way homeownership can be achieved.
Remember, the counselors here at LSS are here to help with either in person or over-the-phone appointments to help achieve your goals. Our advice is free and we will continue to be by your side for as long as it takes. Happy home buying!
If you’re considering buying a home in the future, schedule a meeting with a certified housing counselor with LSS Financial Counseling. We work with Minnesota home buyers long term to get financially ready and informed about resources and options before purchasing a home. Call 888.577.2227 to schedule your free appointment today or visit our website for more information.
Author Dan Park is a Certified Financial Counselor with LSS Financial Counseling.