The Bank is NOT the First Step in the Home Buying Process
If you're researching home ownership as a first-time buyer, you’ve likely come across the common advice that you must start by visiting the bank. And it’s not just a suggestion! They really go for it with phrases like…
”Without a doubt | Unquestionably | Essentially | Take this Critical 1st Step…”
GO. TO. THE. BANK
It's important to view the advice of [visiting the bank first] with a critical eye. Many agents emphasize this to pre-qualify your ability to secure financing. The vast majority of people are fully aware that a loan will likely be necessary for purchasing a house, unless they happen to have the full cash amount on-hand.
Why Is a BANK visit recommended with Such Gusto?
Well, consider the source, that's always a good starting point. There are a lot of real estate agents who won't give you the time of day unless you hold proof that a bank will be supplying you money. We have seen websites where they have it stated prominently in their content.
**Pro Tip**
There are many fantastic Real Estate Advisors out there, so make sure to choose someone who is committed to guide and support you - NOT commission driven.
Before visiting a lender there is important preparation to be done..
For first time home buyers looking for a clear, logical path to remorseless home ownership - the ‘bank-first’ mentality should be replaced with: understanding YOUR Motivation, clarifying Your Financial picture and defining Your home ownership Goals.
This will prepare you for more worthwhile discussions with lenders, when the time comes. You will be able to confidently engage in the conversation with a background and understanding of the process ahead.
When the primary focus is on getting a specific loan amount to begin shopping for homes, you may overlook essential steps in the home-buying journey. For example, without first assessing your financial situation and establishing a clear budget, you might end up with a mortgage amount that looks good on paper but is far beyond what you can comfortably manage in reality.
This can lead to frustration and potential regret and buyer remorse down the road. A successful home-buying journey is built on careful planning and informed decision-making, so take the time to ensure you're ready before approaching lenders. This thoughtful preparation will empower you to navigate the process with confidence and clarity.
**Pro Tip**
Preparation is a first time home buyer’s greatest asset. And just because advice is seen everywhere, does not mean it makes sense. Home ownership success is achieved when research and logic lead the way. Don’t attend a pre-qualifying consultation without your plan.
What to Know About the Mortgage Process & Lenders - TERMS
What is a Pre-Approval (Qualification)
The pre-qualification is a rather basic (non-binding) assessment to establish if the bank thinks you are a viable candidate for lending. This is a review of income, debts and previous borrowing to create an estimate.
*** It does not constitute a loan offer, it’s a preliminary approval to move you to the next stage.***
Mortgage Approval (Applying with the House)
The Approval is created when you have a potential house chosen. Now the lender has the specifics (the asset) to be valued. At this point a definitive loan structure can be created. This is when a deep dive into your finances will be conducted against the cost of the house.
*This is not a formality, this is the nitty gritty of the agreement.
Mortgage Underwriting (The Confirmation)
Underwriting is the process of validating info provided, the asset being purchased (the house), collateral and your financial capacity. The outcome of this may uncover more requirements or simply confirm everything is accurate.
The Pre-qualified Amount is NOT Your Budget - it’s the MAX..
“Get pre-approved so you know your budget”
The above is another common phrase heard that is contextually inaccurate.
Beware of what these numbers mean. Just because a lender approves $$$$ for you - does not mean you can afford to accept it. The well-known US housing crash of 2008 was the result of lending institutions handing out mortgages without sufficient qualification.
**Pro Tip**
Banks are not there to look out for you, make sure the meeting answers all your questions and don’t ever commit to anything until after you’ve gone and reviewed what was said.
A Mortgage does NOT = Your Budget.
A mortgage is 'The amount of cash’ the bank (lender) has calculated they will feel comfortable lending, and confident you’ll be able to pay back if the worst should happen, that's it. Just because you've been approved for X amount does not mean that will be your budget.
Here’s What to Do as a
First Time Home Buyer
STEP #1 for a First Time Home Buyer
Personal preparation and readiness assessments.
A comprehensive PLAN includes a detailed personal examination of your finances, expectations and future, in relation to what is reasonable and achievable.
***Home rich and cash poor is a precarious balancing act - here’s how to AVOID it***
1. Assess Personal Goals and Needs
Assess Personal Goals and Needs
Understand your objectives for buying a home. Is it for investment, family, or personal satisfaction? Clarifying your motivations will guide your decisions.
2. Educate yourself about the Home Buying Process
Learn the Home Buying Process
Familiarize yourself with the steps involved. While you don’t need to know everything, understanding the framework will empower you to make informed decisions.
3. Research the Real Estate Market
Be Market Familiar
Get familiar with neighbourhoods that fit your specifications and budget. Browse MLS listings and visit areas you’re considering.
4. Be Your Own Lender
Consider Total Costs
Honestly assess your financial situation. Look at your savings, income, and expenses to determine what you can afford without financial strain. Don't forget to factor in property taxes, maintenance, and potential HOA fees.
5. Long-term Future Plans
Plan for the Long-term
Consider your future needs and potential life changes. Building flexibility into your plans can help you navigate unexpected circumstances.
6. Consider Professional Guidance (without signing on)
Seek Professional Guidance
Connect with a real estate advisor who offers consultation without pressure to commit. Their insights can be invaluable even before you start the buying process.
The Takeaway
Starting your home-buying journey at the Bank can set a precedent for transaction-focused decisions rather than a holistic and strategic home buying plan. Home ownership involves every aspect of your life, so take your time, prioritize, and prepare yourself. This will create a more equipped and strategically decisive YOU.
The home buying process is always easier when you’re an active participant. Prioritize YOUR Needs and work with a Trusted Teammate.
Do you have home buying questions we can help with?
Chats cost nothing @ LFR
At Lyons Family Realtors we’re committed to changing the narrative around real estate.
We believe in service over sales and transparency over ambiguity. If you’re ready to take a step towards a more empowered real estate experience, connect with us!
- the Door's Always Open
