There are a number of hoops that you must jump through before you can even begin looking seriously at a home. For J and I, the first obvious one was checking in with my parents and getting their thumbs up. The second and slightly less daunting one was to apply for mortgage pre-approval from a bank.
Looking back, I would say J and I wandered into the bank pre-approval pretty blindly. We had read all of this advice like, “no realtor will take you seriously if you don’t already have pre-approval” and “don’t even start looking at homes until you’ve been pre-approved.” So what is this pre-approval? Investopedia has a pretty great breakdown, but expectations and reality don’t always align. Before we knew better, we thought that we’d just give all of our finances to the bank and they would tell us what we can afford. Then we’d have official bank affirmation (in the form of a commitment letter) stating that we are trustworthy Adults who should buy this home. Let me tell you now, this is only partially true.
The bank will tell you if what you’re asking for is WAY too expensive — if they don’t believe you can keep up with the monthly payments or have a good enough buffer of savings after the down payment — but they won’t tell you what you should do. As we learned, no one will hold your hand through this process so the biggest piece of advice I have is to continue to do research at every step.
As you go into the pre-approval process, it’s a good idea to have done some market research on both banks/lenders and housing. You will want to get pre-approval from multiple banks, so start talking to some lenders and keep track of mortgage rates and closing cost estimates at each place. What we’ve found is that Credit Unions will often give you a better interest rate, but larger banks might be more responsive and on top of the process (this analysis is unconfirmed). It’s helpful to shop around because as you move further along in the homebuying process, it’s great to have lender options.
In regards to home market values, definitely start looking around. I used sites such as Streateasy, Trulia, and Zillow, as well as searched local realty offices and listings. Check them out to get a sense of what you’re looking for and how much those things are going for. J and I were pretty clueless in this aspect, but we did narrow down a neighborhood in Queens, had a decent understanding of whether we were going to end up with a condo or coop, and started a spreadsheet of possible options and open houses. We ended up with a pretty wide range cost-wise but figured we’d whittle it down as we looked around and re-visited our finances.
A lot of these sites also allow you to sign up for newsletters that cull information from a search that you personalize and compile a rundown as often as every day of homes that are recently added to the market and fit your criteria. This is helpful in keeping track of the market and getting a better sense of what items are in your search parameters over time. Many local realtors will also have email lists to alert you of new listings.
Armed with mostly vague information, we applied for pre-approval at two banks. One was the suggestion of J’s aunt, who works for a bank and recommended that we just go for it, and the other was at a credit union that seemed to have good rates. When applying for pre-approval, be careful to make sure the information you enter is accurate and correct. It can get tedious to constantly enter every financial detail you have multiple times for different banks, but you want each one to be precise because that could be the bank you end up with (and one typo, say, in a social security number, could come back and complicate your entire mortgage process later on. Not that I know for experience or anything…). Also, I’d recommend applying to at least three banks for pre-approval. There’s no magical number but like I said before, it’s good to have options down the road. Lastly, keep track of every single document and application. Hang on to hard copies because you may need to reference them later.
Besides sharing all of your financial secrets, you also have to tell the banks what you want to buy. This might seem like jumping the gun a bit, but hopefully with the market research you did earlier, you can ballpark things (like, coop for ____ amount with ___ % down payment). Do note that for pretty much every place we looked at, the coop required at least 20% down payment (some places asked for 25%). J and I, looking at the range of places we liked, gave a number at the higher end of the price spectrum, figuring they would tell us if it was too high. We expected a gentle chiding, “silly young’uns, this is the amount you should actually spend on your starter home.” We were pretty surprised when the pre-approval came back and they said we could afford that high number! This is how the mortgage crisis happened, I am sure of it.
It only took a few weeks to get pre-approved but once we had our bank letter we were ready to embark on open house tours. Clear eyes, full heart, can’t lose, right?
This is Part II of a series (mostly anecdotal) about purchasing a coop in Queens. For the rest of the series, click here.