This week on Instagram, a follower asked, “What did you wish first time home buyers knew?” I came up with three things and realized it was way too much to cover in one post so this is part one: getting pre-approved to buy a house in DC. Getting pre-approved means working with a lender to understand what you can afford. Through this process, you will get an understanding of your max budget and monthly payments.
Talk to a lender
Before you start looking for your dream home, it is important to understand your purchasing power. The pre-approval process helps you understand this. The first step is to speak directly with a lender or mortgage broker. You have the option to work directly with a financial institution, like your personal bank, or work with a local mortgage broker. If you are a first time home buyer, I would recommend working with a mortgage broker. Local brokers understand this market much better than larger banks and can hold your hand through the process. In my experience, larger banks have complicated or delayed closings.
Start the pre-approval paperwork
Whichever route you chose, get ready to share all the financial details of your life. Lenders will need to see W2s, pay stubs, banks records, tax returns, etc. Collecting all of these document is overwhelming but it’s just part of the process. After analyzing all your information, the lender will “pre-approve” you for a certain loan amount. Basically, there are saying based on all the information you shared with us, they are confident that they can loan you up to X amount of dollars to buy a home. Pre-Covid, I heard that many people were shocked by the amounts they were pre-approved for i.e. the amount was much higher than expected. I imagine with all this economic uncertainty, lenders may be acting more conservatively now, but I can’t say for sure.
Figure out your interest rate & montly payments
During this process, you can also share a property you are interested in and your lender will model out your monthly payments and quote you an interest rate. The national interest rate is still hovering around 3% but the rate you are approved for could be higher or lower depending on the type of loan you are considering (30 year, 15 year, adjustable rate, etc.) and your own personal financial information like credit score and DTI ratio. Pro tip: speak to several lenders to compare rates.
Share your pre-approval letter with your agent
Many agents wont start showing you homes until you are pre-approved for two reasons. First, they don’t want you to fall in love with a home that your ultimately can’t afford. Second, the DC market moves SO fast that you may need to make an offer on the spot and you can’t make an offer without being pre-approved. Once you get your pre-approval letter, it is good for several months.
After getting pre-approved to buy a house in DC, you should be have a good understanding of your purchasing power. If you are curious about mortgages, check out my previous post, The Basics of a Mortgage.
