The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
When you’re looking to buy a home, there are many people who can help you along the way. Two of the most important allies a homebuyer can have are a real estate agent, to help you find the right property, and a lender, to help you finance the purchase. But which one should you find first, a Realtor or a lender? There are pros and cons to both strategies — we break down the two options to help you make the right choice.
When should I start working with a Realtor or lender?
Whether you should begin your homebuying journey with a Realtor or a lender can depend on who you ask. Most lenders will say that finding a lender first is a good plan, while most agents might point you toward finding an agent before doing anything else.
In reality, it’s usually a good idea to find both before you start your house hunt. It’s a bit of a chicken-or-egg situation: A local Realtor can help guide your search and show you homes that best meet your needs, while getting preapproved by a mortgage lender can give you a better idea of your budget before you start searching. Preapproval shows you how much a lender is likely to loan you, and that number informs what types of homes an agent shows you. It’s all connected.
“I would suggest finding a lender first,” says Levi Sanchez, a Seattle-based certified financial planner. “A lender will provide a better idea of what your budget constraints may be [and help you] visualize monthly payments and down payment expectations. Figuring out your budget will be more beneficial prior to engaging with a Realtor, who will then be able to search within your budget more effectively.”
Keep in mind, though, that a preapproval is not the same as a final, approved mortgage loan. Once your agent has seen you through to a purchase contract on a home, you’ll have to go back to a lender again — it doesn’t necessarily have to be the same one — to apply for the exact mortgage you need.
Finding a Realtor first: Pros and cons
- Get started sooner: If you secure a real estate agent first, they can start educating you about your local market and help you get a sense of what kind of listings are out there while you look for a lender.
- Get recommendations: Agents usually know and have relationships with lenders in their area. They often direct clients to mortgage lenders who are easy to work with or offer good rates and terms.
- Out-of-budget listings: If you’re not sure yet how much you can spend, your agent might unwittingly show you homes that are beyond your budget. It’s no fun to fall in love with a place that you belatedly realize you can’t afford.
- Time wasted: House-hunting before you know your true budget can waste not only your own time but your agent’s as well. And you could lose out on a house if another buyer has their preapproval in hand.
Finding a lender first: Pros and cons
- Know your budget: A mortgage preapproval lets you give your agent a realistic price range to stick within. This gives your search more focus and avoids wasting time on listings that are beyond your means.
- Move quickly: When you look at homes with a preapproval letter in hand, you can submit a serious offer on a place you love right away. In a hot market, that speed can make a big difference in helping you edge out the competition.
- No expert help: Realtors are experts in their particular markets. Looking for a local lender without one means you’ll have to do your own comparison shopping, without the benefit of a professional’s advice.
- Timing: Preaprovals don’t last forever — they usually expire after somewhere between 30 and 90 days. If you wait until you already have one to start interviewing Realtors, you have a deadline over your head that can make you feel rushed.
Shop around for an agent
When you start looking for a real estate agent, it’s important to find someone you like and trust. A home is likely the largest purchase that you’ll ever make, and you want the person assisting you to be easy to work with, capable and have your best interest in mind.
Ask friends and family for referrals, and ask your neighbors too — the more specific experience an agent has in your neighborhood, the better. Take the time to interview multiple candidates. Ask them about their experience, their specialties and how they work with clients. It’s also a good idea to ask about their compensation (even though it’s the seller who pays the real estate commissions in a transaction, not the buyer).
Shop around for low-cost lenders
When you’re looking for the best mortgage lender, look at more than just rates. Different lenders charge different fees and offer different services, and some can cost you much more than others.
Consider getting preapproved by multiple lenders, so you can compare the offers to see which is the cheapest and offers the best deal. These applications do have an effect on your credit score, though, so be sure to keep all your applications within a relatively short time window to keep the effect minimal.
Bankrate’s home-affordability calculator can also help you crunch the numbers to determine how much you can afford to spend on a house.
While working with a Realtor is the traditional method of homebuying, not all buyers do. One popular alternative for sellers is to sell to an iBuyer like Opendoor. These companies make quick cash offers without the need for a traditional, agent-assisted listing. But they typically don’t pay as much for your home — you get speed and convenience, but you sacrifice profit in exchange.
Not all buyers finance their purchase with a mortgage, either. Those who have deep enough pockets can choose to pay cash for a home instead, which avoids the rigamarole of the mortgage-application process. This makes your offer more appealing to sellers as well, as not having to wait on underwriting can speed up the process considerably.
They each have their pros and cons, but in general, it’s smart to get preapproved by a lender before you hire a real estate agent. That way, you’ll have an idea of what your budget should be, and your Realtor can use that info to guide the search. You’ll also be ready to submit an offer faster when you find a home you like. Keep in mind, though, that a preapproval is not a final approval, and once you go into contract on a home, you’ll have to deal with a lender again to secure a mortgage.
You can talk to a real estate agent at any point in your search. But if you’re serious about house-hunting and not just browsing, it’s smart to get preapproved for a mortgage loan first. That way, you and your Realtor will know how big of a loan you’re likely to get, and thus how expensive of a house you can afford.
Yes, many lenders and real estate agents who work in the same market know each other and may even refer clients to each other. They may also work together at the home closing, where ownership of the home officially changes hands and the deal is completed. But just because the two parties know each other does not mean you, the homebuyer, will get a better deal.