The process of buying a home is challenging but the financial reward is proven. Being that it is not something one does on a frequent basis, understanding the nuances to the process will better arm you for a stress-free transition into homeownership.

While doom scrolling Zillow is the hottest pandemic pastime, the first step should be a pre-approval from a lender. Getting Pre-Approved is a no-cost, no-obligation way to know what you can truly afford as a monthly mortgage and what price range of homes you should shop for. A pre-approval will be required to submit an offer on a home, and in the age of Covid, many times you will need a pre-approval just to tour a home as agents look to limit traffic to just the most serious buyers.

Pre-Approval vs Pre-Qualification

Note that not all Pre-Approvals are created equal. Big banks and online lenders will offer you an instant “Pre-Qualification” which is virtually worthless because it is based purely on the values you state without confirmation of accuracy by an official mortgage broker.

A true Pre-Approval will include you submitting your back taxes, bank and credit card statements to a mortgage broker who will analyze what you really take home less what you spend to come up with a debt to income ratio. 

The findings are condensed into a single-page Pre-Approval letter from the lender and it is this that you will use for showings and offers.

An Even Better Pre-Approval

There is a lot of competition in the market right now and any edge you can get will be needed to get into escrow. As a lender processes your information to generate a letter for you, there will be Underwriter FIndings generated from a universal program most use called Direct Underwriting (DU).

Your letter should state that you have been cleared through “DU” Having a copy of your DU findings is another tool in showing your loan worthiness and it could make the difference between you and another buyer in the end.

How to Find a Lender

As with real estate agents, there are hundreds of mortgage lenders to chose from in Pasadena, Highland Park, Eagle Rock, Silverlake etc. In a fast-moving market, as we have now, timing is everything for most escrow periods will be 30 days or less. Delays could cost you money in the form of per-day penalties for going over the escrow period or a loss of the house you love or even worse loss of your deposit (3% of the purchase price).

The relationship with your lender will be a brief one as most loans are sold to the secondary market after closing. So you will not be dealing with that same mortgage company for the 30 years of your loan. SO focus on someone that can get you a great rate and process the loan in time.

Big Banks vs Independent Lenders

Your Pre-Approval does not have to be the same person you get the loan from so you can “shop” your loan once in escrow. 90% of the time a small independent lender will have less overhead than the big banks so their rates and fees will be less.

If you are a full-time employee with an annual W2 statement from your employer, then your file is a simple one, if you are self-employed (10-99) your file will be more difficult. Big banks will do better with simple files whereas independent lenders can take more time to make a 10-99 file happen on schedule.

The type of loan will also make a difference. If you are shopping for a home that is over $905,000 (and you are doing 20% down), you will need a jumbo loan. Jumbo loans are riskier for lenders and independent lenders may charge more fees or not be able to do them in today’s climate.

In addition, listing agents are well aware of the challenges of big banks and prefer to see Pre-Approval lenders from independent lenders, especially if they have a relationship with them. It instills confidence that the loan will happen.

Knowing all of this, my advice is to get a Pre-Approval from a reputable local lender, and then once in escrow shop the rate with a couple of independent lenders and the big bank you do your day-to-day business with.

If you need a list of reputable independent lenders, just reach out, I know several that I would send my mother to if she needed a loan.

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Michael Robleto is a Los Angeles based REALTOR® that specializes in Historic, Pre-War  and Mid-Century homes in Pasadena, Altadena and east side cities like Los Feliz, Silverlake, Eagle Rock, and Mount Washington. Michael uses his vast knowledge of older homes, residential construction, and modern-day marketing to predict and solve the many problems that arise in real estate transactions. His client accolades of insight, prompt communication, integrity, and hard work support the fact that he is not your average agent. 

Michael leverages his personal passion for historic architecture to provide his clients with the unknown insight into the pros and cons of older homes.  Michael, the son of a contractor, a California native, grew up in an older Bungalow home and has spent 23 years in Southern California admiring the unique architecture of the region. Michael brings 20+ years of negotiation and sales experience to his seven-year career in residential real estate.  He often writes on homeownership strategy, historic residential architecture, and related topics that can be found on Facebook, YouTube, Twitter, and Instagram under the common profile name of his blog; BungalowAgent. 

Michael sits on the Board of Directors of Pasadena Heritage and is frequent volunteer for the preservation efforts of numerous historic neighborhood associations and the LA Conservancy.  When not working you can find Michael on hiking trails statewide with his faithful German Shepherd Axel.