We sat down with the Senior Vice President of Lending for Guaranteed Rate, Michael Bencks, to talk about financing tips and advice including some of the most common financing questions for first-time homebuyers, the point at which you should get in touch with a lender, interest rates, home buying programs to take advantage of, and more.
The most common questions everyone asks when meeting with a lender are “What is my monthly payment?”, “How much cash do I need to close?”, or “What’s the most we’re pre-approved for?” Instead of leading with those questions, Michael encourages first-time homebuyers to think about financing a bit differently. Most people can get pre-approved for way more than what they are willing to pay for monthly. So instead of starting with the big number, Michael suggests to work backwards. Instead, he suggests for buyers to think of a number you want going out the door every month, which can include interest, taxes, insurance, etc. From there, a good lender should be able to reverse engineer a down payment and a mortgage so you aren’t left surprised when you get to the monthly payment.
Instead of shopping around for homes first, consider getting in touch with a lender. “You shouldn’t test drive a Maserati before buying a new car,” says Michael. In other words, it’s important to understand what you can afford before shopping at price ranges too high. This can save you a lot of let down when it comes to understanding what’s realistic in your price range. For example, it’s hard to unsee heated floors and exquisite finishes when those are some of the first features you saw in over-budget homes.
Another common question from first time homebuyers is “What is your rate?” But it’s not as simple as that. You may see an amazing interest rate online and yes, it does exist, but it may be difficult to check all the boxes of criteria in order to qualify. When you meet with a lender, you begin to uncover which types of rates are out there and how you fall into each of them. From there, you’re able to find an interest rate for your own unique situation.
When finding programs to take advantage of during the home buying process, keep in mind there are restrictions and criteria to those as well. For example, you have to be based in a certain zip code or meet certain income requirements for some programs. Michael also mentions that programs are like coupons, you can’t use all 5 at the same time. Find a few programs that are unique to you and pick the best one for your situation.
The biggest difference between financing in retail banks and mortgage lenders is their business models. If you’re planning to go to a retail bank, they tend to only offer a few options for fixed loans. On the other side, if you choose to work with a mortgage lender, you may receive a variety of customized options that suit your needs specifically. Mortgage lenders and retail banks also differ in speed and efficiency. Retail banks have many arms of their business, causing a bit longer lead times. Whereas mortgage lenders typically have fewer people in specialized roles, causing processes to move quicker. Another difference between mortgage lenders and retail banks is their office hours. For retail banks, they have set office hours of 9-5. Michael Benck explains that real estate isn’t just 9-5 and that his team understands there are offers that need to be in at any time of day. For example, Michael likes to think of it as “if there’s something that I can get done in 5 minutes and will decide if someone gets a house for their family, for a shorter commute time, etc., it’s well worth it.”
Homebuying and financing isn’t as tricky as it seems. All you need for a smooth, efficient, and successful homebuying process is your well-equipped team of an attorney, lender, and broker.
To watch the full IGTV interview with Michael Bencks and Amy Galvin about financing and first-time homebuying, click here. For any questions or concerns you have, connect with our experienced team today.
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