Are you a first time home buyer considering buying a home in 2023 but unsure where to start? Should you Buy Now or Wait? When should you start the pre-approval process? How early is too early to start the home buying process? What’s the difference between a pre-qual and a pre-approval? What documents are required for a pre-approval? How long will the pre-approval process take? When can I go shopping for homes? In this episode, we discuss how to get a mortgage in 2023 to help you become The Educated HomeBuyer.
Connect with me 👇 Jeb Smith (huntington beach Realtor/orange county real estate) DRE 01407449 Coldwell Banker Realty ➡I N S T A G R A M ➳ https://www.instagram.com/jebsmith ➡Y O U T U B E ➳https://www.youtube.com/c/JebSmith
Connect with me 👇 Josh Lewis (Huntington Beach Certified Mortgage Expert) DRE 01209148 Buywise Mortgage M:714-916-5727 E: firstname.lastname@example.org ➡I N S T A G R A M ➳ https://www.instagram.com/borrowsmartjosh ➡Y O U T U B E ➳https://www.youtube.com/c/buywiseborrowsmart
✅ – Want to get connected with us or to a local expert in your market, please reach out at http://www.theeducatedhomebuyer.com/expert
📩 – email@example.com
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For Show Notes, See Below:
TEHB – S01EP40 – Get a Mortgage 101
[00:00:00] Jeb Smith, Huntington Beach Realtor: Over the last couple of weeks, we’ve taken a deep dive into the home buying process, but we’re still getting questions about where to start the process. So Josh, I thought we could back it up a little bit and actually talk about the first stage in starting the home buying process, which is getting a mortgage.
How to go through that process. An overview, if you will. So why don’t we just, back it up if you will, go back to where we started with the podcast and help educate home buyers through the process of getting a mortgage. And from there we can reference some other episodes and really take ’em along the journey if.
[00:00:33] Josh Lewis, California Mortgage Broker: Absolutely. And you had said over the last couple weeks, but Jeb, we’ve been at this a while now. This is all the way back to last March. So we’re going on 10 months of covering this in longer, deeper dives. And we’ll make reference through the course of the show to some of the other episodes if you wanna go deeper on any of these topics.
But yeah, we wanna give an A to Z overview of what to expect, what it’s gonna look like for those of you who are getting ready to start shopping for a mortgage and a home in the new year.
[00:00:57] Jeb Smith, Huntington Beach Realtor: And Josh, let’s start with the question. How early is too early to start this process?
[00:01:02] Josh Lewis, California Mortgage Broker: That’s not a question, that’s the question.
I would say probably 40, 50% of the questions I get asked revolve around that in some way or the other. It’s a big purchase. People like to plan and think ahead. People will call and give me the answer of, ah, we’re looking at buying next spring. When should we start talking? Or when should I call you to start the preapproval process?
It is never too early to start. Most of our clients are well qualified, meaning good credit scores, they have some money in the bank, they’re stable in their employment. So their thinking is, well, no need to start this and then redo the documentation, update everything.
But even for the best qualified borrowers, there can be little things in your credit. There can be money moving around among accounts. So, the earlier we start, the earlier we can get all of our cards on the table, see exactly what we have, and play our best hand. So we may decide to not pull credit early in the process or do a soft pull for someone who knows they’re not gonna be buying for six months.
But I absolutely think there’s no such thing as starting too early so that we get the big picture overview. You can see what you qualify for today, what things we’re gonna have to work through. Work around how much money you’re gonna need and how much your payment is going to look like and what price range that translates to.
There’s nothing worse than having some ideas in your mind, waiting till next March, and then finding out I qualify for a hundred thousand less, or I have this weird thing on my credit that I was unaware of that I can fix, but it’s gonna take 60 days. So never too early to start getting your ducks in a row, seeing the big picture, and knowing what you’re gonna go through with that preapproval process.
[00:02:36] Jeb Smith, Huntington Beach Realtor: I like, the idea of, once you’re ready, once you know you’re going to be buying a home, being ready to have that conversation, but before you do that conversation, one thing I’d like to ask you to do is set a budget. Sit down with your spouse, your significant other, yourself if you’re single, and just go through your expenses.
What do you take home every month with regards to your pay? Where does that money go? Do you spend money, going out every night? Do you spend money eating dinner? Do you have childcare? Do you have alimony? Where does the money go every month
And from there, really analyze the budget and see how much money you’re comfortable spending on a mortgage payment. And the reason I say this, It’s because, once you start having the conversation with a Josh and going through that process, Josh is essentially going to tell you, Hey, this is how much you can qualify for, but he can’t tell you how much you can truly afford.
And I think it’s important. Going into that process, having a number in mind, and it’s okay if that number changes a little bit, but not being blindsided, with the idea that, hey, I’m pre-approved. I get to buy a house. It’s exciting, it’s emotional, you’re on this high and then you forget of all of these other things that, that our, our factored in into your monthly budget, but not really taken into account when Josh is doing that analysis.
So just, start with a budget, you. Prior to having that conversation, and then from there, you’re calling Josh and having that conversation. Now, Josh, we’ve talked about this before, but what are we talking about when we’re talking about prequel versus
[00:04:07] Josh Lewis, California Mortgage Broker: pre-approval?
If you want the full detailed explanation, go back to episode four here in season one, and we do probably 30 minute explanation of what the difference is and what exactly to expect.
But in simple terms, a prequalification, we’re gonna jump on the phone and I’m gonna ask you questions, and I’m gonna accept what you give me on face value, and we’re going to give you a number of what you potentially qualify for.
So how much money do you make? How much money do you have in the bank? What does your credit score look like? What do you owe on a monthly basis between credit cards, student loans, auto loans, anything that you pay that would show up on your credit report.
So if we don’t have any of the supporting, validating documentation now, if we want to go from that point and move on to pre-approval. We’re gonna get the complete loan application, and we’re gonna get all the documentation that we’re gonna talk about here in a minute.
So a pre-approval is a validated pre-qualification, and there are lots of little things that can come up between pre-qualification and [00:05:00] pre-approval. Lots of times people will tell me, I make this much money. That’s correct. Next month you can count on that much money coming in. But for an underwriter’s purpose, they’re looking at historically what you make, and they may come up with a very different number.
So the pre-qualification is a recipe for incorrect answers based off of us not being able to validate and calculate all of the figures the way an underwriter is going to now.
And if you want
[00:05:22] Jeb Smith, Huntington Beach Realtor: a deeper dive into that, check out episode four. Season one, episode four, to deep dive into that prequel versus preapproval pre-approval so that you can, get a really a micro view of what’s happening there.
But Josh, now this is the question I have. Do you as a potential home buyer gather documentation prior to calling you, or do they call you, have a conversation and then gather documentation? What do you prefer as a lender when someone calls.
[00:05:50] Josh Lewis, California Mortgage Broker: We talk all the time about how pre-qualification is worthless, but on that first call, I’m gonna do a version of the pre-qualification, and the strange thing is I actually know other really good loan officers around the country, and their process is, Jeb refers someone over to them, their realtor refers someone over and they send out.
Hey, here’s the link to my application and then here’s the documentation I need. Upload it and we’ll schedule a time to talk. I think that’s crazy. This is, a, $200k, $300k, $400k, $ million loan on a very expensive asset. You probably wanna know who you’re talking to and make sure you have some rapport and you like them and have some trust there.
So we’re gonna have an initial phone call that is basically a pre-qualification. I’m going to ask information that allows me to determine what documentation we’re gonna need. That’s what we’re gonna talk about next, but that first call, my preference is that we jump on a call and I’m gonna say, “Hey, Jeb, that’s awesome that your realtor referred you over.
Tell me a little bit about what you’re looking to accomplish in terms of areas you’d like to be. Price range you’d like to be type of property. Is it condo or a single family residence?”
And then we’re gonna talk a little bit about your income and employment and assets and that type of stuff. And that’s just to enable me to accurately request all of the documentation that we need and only the documentation we need so we’re not sending you on a wild goose chase tracking down things that we don’t need.
So two purposes to that phone call. Get all your questions answered, make sure we’re on the same page, make sure we are a good fit to work together. And then from there, we’re gonna start that preapproval process
[00:07:18] Jeb Smith, Huntington Beach Realtor: Before we start talking about those documents, Josh, let’s talk about where you actually find a lender. Right? Do you go online? Do you get a referral? What’s the process? I’m drawing blanks here on, you know, going to your local bank.
Like I obviously we’re gonna be a little bit biased here, right? Because we’re in the business, but, you know, thoughts on people. Cuz you have people that find you online, you have people that come as a referral, what’s the, the process
[00:07:42] Josh Lewis, California Mortgage Broker: like?
Our common answer is you wanna be working with an expert. So if you go to your bank, we have this happen all the time. People will go to their bank to request a wire for their escrow deposit and they say, “Hey, we do loans. You should talk to one of our loan officers.” And usually, if the folks agree, we get a call saying, “you are not gonna believe what this conversation sounded like.”
Cuz it’s essentially a bank teller there that you’re working with. They have some mortgage training, but they’re not a mortgage expert. When you are considering the sources of where to get your loan, your preference is, hopefully, that you know someone that has worked with this person before.
You want to talk to a couple of people. Of course, I’m biased if you talk to me, I’m the only person that you need to talk to. But there’s no point of reference if you only talk to one person. Talk to a couple of people and see. All reputable lenders should be in a fairly narrow range of prices.
That being said, the biggest lender in the country, if you find them through one of their 9 million TV ads every day and you call them up, they’re gonna be much more expensive than anyone else. And if you accept they’re JD Power rated number one and do more loans than anyone in the United States and just go down that path, you would never know.
We had a deal last year. It was a $750,000 purchase. We were, three eights lower in interest rate and $18,000 lower in fees. So 75% or so of borrowers will just work with the first person that they talk to. You need at least one point of comparison. So how deep you go in that process, how far you go in that process, is gonna depend on your comfort level and the quality of those conversations that you’re having?
[00:09:08] Jeb Smith, Huntington Beach Realtor: I’ll say I’m biased as well. I mean, my business is primarily a relational business. And you know, just like if I go to find a contractor or I go to find a babysitter or whatever it is in my life, I’m asking for referrals. Like, who do you know that’s done a good job for you, that you trust, that you, I mean that you know, you like, you trust that you can pass their name along to me so I can have a conversation.
And I would say the same in this business. Find someone that’s had a great experience. Ask them who they used and use that again as a point of comparison. Now I will say fortunately, Like yourself, Josh.
I network with a lot of top agents across the country. A lot of top mortgage people across the country, and so I’m having conversations with experts all the time. So if you’re in a state where you don’t know an expert, don’t know anybody that’s purchased a home, don’t have anybody you really trust to make that referral reach out to us.
We’re happy to make that referral to someone we know, we like, we [00:10:00] trust that can guide you through that process. And there’s actually a link in the description below where you can click on a couple buttons and we’re happy to put you in touch with somebody.
But the important thing here is to find somebody that knows the business that didn’t just get in into it because the last couple of years have been a hot market. You want somebody that, that’s you know trusted, tried true through years of ups and downs in this and can answer your questions in a timely manner and more importantly, guide you through that process.
So that’s how you’re gonna find the lender. But when you know, you’ve had the conversation with the lender now, Josh, you’re going through that initial conversation you’re saying.
“OK, we’ve had the initial conversation. You sound like you’re in a position to be able to buy a house. This is what I need.” and when I say, this is what I need, Josh, what are you actually asking for from a potential buyer that’s looking
[00:10:47] Josh Lewis, California Mortgage Broker: to take the next steps?
The first and most important thing is the loan application and people think, oh my God, it’s a loan application. It’s a big hairy deal. I’m asking for money. To a degree you are, but in reality, that’s what our conversation was. You’re saying, “I would like to buy a house. I need to borrow some money to do that.”
What the application does. Is, it’s a summary of all of the documentation that we’re gonna gather. It’s gonna tell us your name, date of birth, social, if you’re married, if you have any dependents, that type of stuff. It’s gonna tell us where you’ve lived for the last two years. It’s gonna tell us where you’ve worked for the last two years. People get hung up on saying, it doesn’t ask for my liabilities.
Well, when we pull it will populate those liabilities and you’ll get a chance to look at and review that. We need to know what you think all of your assets look like. And an important part about this loan application to remember is there’s a preliminary loan application that we’re working on on the front end, and then when we get all the way to the very end, your loan has been through underwriting and it has been approved.
The underwriter’s gonna make corrections. You might think you make $6,400, I think you make $6,200 and the underwriter thinks you make $6,100. That final loan application that you’re gonna sign says $6,100 a month income. So it’s important to not get hung up on this.
We’re gathering information. We’re next gonna gather the supporting documentation that validates and verifies that this information is correct, and then the underwriter’s gonna go through it and double check our work and make sure that the story that we’re telling is accurate. So you’re gonna start with that application that gives us all of the demographic information that we need.
Because the only other alternative is sitting here, boring 20 minute conversation. “Hey Jeb, where did you live? Uh, for the last two years?” “OK, and what was the zip code there?” “OK, and what was your employer’s phone number?” Boring stuff that you can do on a computer or on your phone really quickly.
A lot of times we will actually have the borrower complete that so I can get a look at it. Once I see it, then I know exactly what documentation we need. And what do we mean by that? Doesn’t everyone provide the same documentation? Well, actually no. Your most basic borrower, and I don’t mean basic in a bad sense. I mean, simple in our terms, is a single borrower who has all of their money in one bank account, who has been on one job for more than two years, and they’re paid a salary with no variable income, no overtime, no bonuses, no commissions.
They don’t own any rental property, they don’t have any, dividend income that we would need tax returns. So in that situation, we’re gonna ask for pay stubs for the last month, W2’s for the last one to two years, the bank statements for the last two months, photo ID and we’re off to the races that it’s that simple.
Now, on the other end of the spectrum, let’s say we have a borrower who owns three businesses, and all of those are either partnerships, LLCs, or S Corps. We’re gonna have two years of business tax returns for all three of those businesses. Then we’re gonna have the personal tax return. And then now let’s say they have some money, saved in an investment account, some in checking, some in savings, and they’re all in different institutions.
We would have to get two months of all of those statements. So really all we’re doing is validating the information that’s on the loan application. Where have you lived for the last two years? Where have you worked for the last two years, and how were you paid? And then where are your assets and are they seasoned?
Have they been in that account for more than 60 days? So we’re just trying to validate the information that you put on the loan application, and that’s what that preapproval process looks like. Give us the loan application, give us the supporting documentation, then I’m gonna review it and determine which loan programs you are eligible for.
[00:14:12] Jeb Smith, Huntington Beach Realtor: Now, Josh, I’m going to ask some basic questions that I think a lot of buyers out there would want to know. I go with you, I have this conversation, I send you this documentation. I sign a loan application. Am I committed to you? Do I owe you any money? Like, what happens if I change my mind? Don’t decide to buy, go with another lender. How does that process work?
[00:14:33] Josh Lewis, California Mortgage Broker: You talked earlier about find someone that you know, like, and trust. My job once we are introduced is to make sure that you know, like, and trust me and that you feel like we are going to give you the best results for you and your family with this big financial decision.
We don’t charge anything up front. We don’t charge for a credit report, even though we pay for that credit report as soon as we pull it. We don’t collect for an appraisal to try and lock you in and tie you in some of these big national call center lenders, they’re gonna try and get your credit card information as soon as possible to [00:15:00] make you feel like you’re locked in and you’ve committed time and money to them in that process.
The reality is we do not get paid until the loan closes, and you are not committed to doing that loan until you sign your loan documents, you know, a week prior to closing, four days prior to closing. So signing a loan application is basically telling me this is accurate information and here’s the documentation that you need to support it.
From that perspective, no, you’re not committing yourself to anything. We can go a little bit deeper on that, I had a client a week or so ago who actually came from the YouTube live, Jeb, and he had been pre-approved by a lender, got his offer accepted with that lender, and then got to shopping after he had his offer accepted and he had three lenders order appraisals, and the listing agent hears this and goes, “What are you doing, dude?
We’re not doing three appraisals in this property. You need to tell us who your lender is.” So he didn’t do anything wrong other than he shopped after he got the house. So you wanna do all that stuff up front, so you’re not paying for three appraisals, that you don’t have three people working on a loan thinking that they’re going to get paid when we don’t get paid until the very end of the process.
So by all means, do your due diligence. Make sure you found someone you’re comfortable with and you feel is giving you great terms for your loan. But you need to decide that really before you get your property into escrow.
[00:16:15] Jeb Smith, Huntington Beach Realtor: And how long should that process take? Not just the quick conversation on the phone that’s probably gonna take 20 minutes. I’m talking about, I’m a borrower, I do the loan application. I send you that information and say, I’m a really diligent borrower. You send me the link, I do the application immediately. I have the paperwork over to you within a couple of hours. What’s the process look like from there?
[00:16:35] Josh Lewis, California Mortgage Broker: Typically within 24 hours of receiving all of your documentation. And there are times where there can be questions. The documentation that you provide brings up questions and we need more documentation. We need to ask a few questions. But for the most part, especially for those borrowers who have a relatively simple file, pay stub, w2, you’re gonna have a full answer within 24 hours.
So we need to set up the file, we need to pull the credit, we need to review everything. Make sure that we have basically pre underwritten the file. My job is to do what the underwriter is going to do later, so they don’t come up with any questions that you and I haven’t already gone over on the front end.
And you would be stunned how many lenders don’t approach it that way, but it’s not just, Hey, do you qualify? It’s, yeah, you qualify, here are the potential hurdles and roadblocks, let’s start working on those now so that once you get into process, it’s super smooth and easy. But really, uh, 24 hours. And what we do from there is you may qualify for 2, 3, 4 different types of loan programs.
We’re gonna give you a side by side comparison, so when we have that conversation post pre-approval, so we have you pre-approved, we prepare some options, we send them over. Then you and I jump on a call or a Zoom and we review that, answer all your questions, make sure we agree, “Hey, here’s all the options. This is the one that is best for you.”
You’re not committing to that. We can change that at any point, even after you’ve found the property. But we don’t have to make that decision today, but we have to think, Hey, this is the route that we’re going to pursue. This is what looks best to us today.
[00:17:57] Jeb Smith, Huntington Beach Realtor: Now you’ve done the preapproval. I’m good to go. Is there anything that could change that? Like, you’ve told me I’m pre-approved, I’m ready to go shopping for homes. I don’t do anything for a couple of months and really find a home. Am I still rock solid or are there things that I should be doing, shouldn’t be doing through this process to make sure that my pre-approval still valid?
[00:18:17] Josh Lewis, California Mortgage Broker: As long as the underlying information remains the same, nothing changes. So stay on your job, keep working the same hours. Hold on. I need a job pay rate. You need a job. Most times we do jobs for people with, uh, or do loans for people without jobs, but it’s not, not super common. So don’t necessarily change jobs without letting us know. A job change in and of itself, especially in the same industry, and hopefully for more pay, is not a problem.
But let us know if you’re going to do that. If you lose your job, let us know about that. A small gap of employment is not a problem, but we wanna know and go through that. So what are the things that are somewhat in your control, your employment, your assets that you’re not spending the money that you have in the bank, your credit, that you’re not missing a payment that you haven’t taken on additional debt.
So as long as all that underlying information remains the same, you should be fine. Now, there are a couple things that are outside of your control. You know, in 2020 and 2021, someone waits 3, 4, 5 months, home prices could have gone up 10%. So you’re qualified, and now home prices are much higher.
What we’ve seen over the last year is you get qualified and interest rates go up rather rapidly, so, It’s important that we get you a number so that you can see, hey, if we were in escrow today, here’s what the terms look like so that you know that our terms are competitive.
But what I don’t wanna do is give you the absolute best number that we could do today if we were gonna lock when we’re not gonna lock because we don’t have a property. So over the next 1, 2, 6 months rates could be lower. Rates could be higher, so we need to come back together once you’re ready to start shopping and say, here’s where rates are today. Has anything changed? Did you take on any new debts? Did you spend any of your money? Did you change jobs? Cool, we’re good. So, in general, it’s pretty uncommon that someone [00:20:00] loses their pre-approval.
It has happened in the last year because rates went up so rapidly. People didn’t lose their approval, they qualified for a lot less once they came to start looking. But for the most part, it remains fairly consistent over the timeline that most folks get pre-approved to when they buy a home.
[00:20:16] Jeb Smith, Huntington Beach Realtor: And then what’s the importance of a preapproval letter? Like, do I get a letter once I’m approved? Do I need a letter? What do I need to provide to my real estate agent? Obviously I know the answer, but, but what are your thoughts on it.
[00:20:27] Josh Lewis, California Mortgage Broker: Well, there’s two or three pieces to it. If I give you, if we go through this and we say, Hey, I looked at all those options.
I see I qualify for conventional, but it looks like FHA is the best for me. It’s the lowest payment, lowest cash to close. We want to go that route. A lot of times a borrower for their peace of mind wants something in writing that says, I am pre-approved for an FHA loan for $475,000. And I totally get it. Happy to prepare it and send it out. I don’t necessarily want to use that when we go to submit offers.
Now you ask another important thing, what does my realtor need? So we have a lot of people who find us online and we haven’t worked with their realtor before, so they need to make that introduction. And this realtor on the other side, they don’t know who Josh is, so they’re going.
Uh, do I get a preapproval letter? Can I have a conversation? How do I know that you’re actually qualified for that? So we’re gonna have a conversation with them. We’re going to get them the preapproval letter also, but this is generally not the one that I want you and your agent using when you write an offer.
So in this hypothetical situation, I just said, I’m gonna shoot you a $475,000 FHA preapproval letter. What if you go out and you go, oh, we found a $400,000 condo and it’s not FHA approved. We don’t wanna send a $475,000 FHA preapproval package. We wanna do one conventional 400,000 that says you are qualified for what your offer is.
So it’s basically custom to the offer that you’re making so that the listing agent, when they see it goes, yep, this all matches up. Answers the questions in terms of qualifying the borrower and also qualifying for my property. So that’s what the process looks like.
I don’t, I don’t necessarily give them out willy-nilly on the front end, but if a borrower wants it for their peace of mind and comfort level, we’ll absolutely give it to them and we’ll absolutely give it to an unknown agent so that they have peace of mind and can start looking at what we like to do and how we handle and operate that. But you’re going to get a custom pre-approval package when you go to make your offer.
[00:22:20] Jeb Smith, Huntington Beach Realtor: Good stuff. So in summary, what you’re gonna do is once you make that decision to buy a house, you’re going to work on a budget. And once you have that budget, you’re going to reach out to someone like myself, to Josh, get a lender referral, a realtor referral, and start having that conversation with a lender.
You know, that introductory conversation that Josh mentioned. From there, you’re likely gonna go through the loan application. You’re gonna fill that out either in person or online or on the telephone, however you prefer or the lender prefers at that point, and provide supporting documentation.
Lender’s gonna take day, maybe a couple of days depending on your scenario, look through all of that documentation and in theory, approve you. Once you’re approved, you’re gonna get that pre-approval letter, make that introduction to the real estate agent. If you don’t have one, you’re gonna reach back out, we’re gonna make that introduction for you. And then from there you get the fun part of actually going out and shopping for homes.
A quick recap. There’s no timeline on when you should start this process. If you’re thinking about buying a home in 2023, these are the things that you need to start thinking about now. Maybe you don’t wanna do it through the holidays or whatever, but maybe set a goal right after the first of the year to start working through this process and getting yourself closer to home ownership.
Hopefully you guys found some value in that. We’d love to know your thoughts on additional episodes, what you guys would like to hear. So there’s an email in the description below. Also, take some time, rate us, review us on whatever podcast platform you listen to.
But for now, we appreciate you listening. We appreciate the support. We’ll talk to you soon. Adios.
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