Many people miss a key step before going to open houses and finding a real estate agent: talking to a mortgage lender. Not only does this help you better understand which loans are available to you, but it also makes you more attractive to sellers and real estate agents. Plus, when you do want to write an offer, you need to have your pre-approval letter along with the purchase agreement. With how quickly the market is moving, if you don’t have your pre-approval ready to go, chances are the house is going to be gone before you get the letter back from your lender.

Here are seven reasons you should talk to a mortgage lender before you begin the house-hunting process.

1. It sets realistic expectations

There’s nothing worse than finding your dream home, then realizing that it’s just outside your financial reach. Zero-percent down loans are available only if you qualify for a Department of Veterans Affairs or Department of Agriculture loan, and putting less money down can substantially increase your borrowing costs over time. However, 20% down isn’t always the right option for people. Talking to a lender can help you decide what is best for you. Plus, just getting an online quote isn’t the same thing as being pre-approved. A pre-approval letter proves to both real estate agents and sellers exactly what you can afford.

2. You may be closer to buying a home than you think

One reason home buyers may hesitate to meet with a lender is that they think they aren’t financially ready. You may think your credit score is too low, or you don’t have enough saved up for a down payment. You might be surprised, though. You don’t need perfect credit to buy a home. Many people put off buying a home until they have a good credit score (typically a score of 700 or higher). A credit score of 620 is generally considered the minimum to qualify for a mortgage, but many lenders work with applicants with lower credit scores. Federal Housing Administration loans are available to applicants with scores as low as 580, and your lender may be able to connect you with other options. And, as we mention in this article, 20% down isn’t always the only option.

3. A lender can help you create an action plan for improving your credit

If your credit score is on the lower end, you may want to take some steps to improve your credit so you can qualify for a better interest rate. To formulate an action plan, lenders will typically:

Do a “soft” credit check—A soft credit check is a credit inquiry that doesn’t hurt your credit score. This gives your potential lender a sense of where you stand today.
Review your financial statements—Reviewing your bank statements and any investment or retirement accounts you have helps your lender know your available income and assets.
Ask you about your budget, income, and financial history—Don’t be shy or embarrassed when it comes to disclosing this information to your lender, whose goal is to work with you and for you. If you had a financial rough patch, got behind on a bill, or co-signed on a loan for your brother-in-law that you really regret, let your lender know.

Once your potential lender knows the ins and outs of your financial situation, it can develop a plan to help you pay down debts that are dragging down your credit score.

4. You can still shop around

Just because you’re pre-approved for a loan doesn’t mean you have to stick with that lender. You can continue to apply for loans from other lenders — just be sure to collect your offers on the same day, since mortgage rates change every day. To keep your credit score strong, do all of your loan shopping over a short period of time. Typically, your credit score gets dinged every time a company — like a lender — pulls your report. But if you apply with several lenders within 30 days all the inquiries will count as a single inquiry.

5. A lender can specify what you need for a down payment

Lenders can also clarify exactly how much you need to save for a down payment. FHA loans, for example, require a down payment of at least 3.5%. You may want to make a larger down payment to bring down your monthly payment or to offset negative credit items. A larger down payment of 25% to 30% lowers the lender’s financial risk, making your application more appealing. A high down payment isn’t a requirement to qualify for a mortgage, though. Depending on your situation, you may qualify for a down payment assistance program. Many of these programs are localized, so to find out what you qualify for in your city, you should sit down with a lender in your area.

6. It helps you know what you’ll pay at closing

The first check you write is going to be for more than just your down payment. After you apply for a mortgage, the lender will give you an idea of how much origination fees, title fees and appraisal fees will cost. While the seller often pays at least some of the closing costs, your share might still be as much as 3% of the loan amount.

7. You'll know what to expect

The mortgage application process is lengthy, even for experienced home buyers. For first-time buyers, sitting down with a lender can give them an understanding of the mortgage underwriting process, how long it takes, and what documentation they will need to have prepared. Sitting down with a lender can help demystify the lending process, giving you time to get “mortgage ready” so you can purchase your dream home—whenever the opportunity presents itself.

In a fast moving market like today’s, talking with a Grey Duck agent and lender is the best way to be prepared for buying a home. We will sit down and go over the entire process with you, answer all of your questions and possibly questions you may not even know you have. Knowing what you can afford and what to expect during the process is necessary to be a prepared and smart buyer!

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