I’m always excited to speak with someone who’s a few months away from shopping for a home. It gives us the chance to talk about some of the themes, basic guidelines and decisions that can take time to understand when buying a home. Taking the time before you’ve found your dream home and are in the heat of the moment, helps you make wise decisions based on your financial picture and goals. If you’re wondering how to prepare to buy a home, start with these three steps.
Step 1: Identify Your Maximum
The first question I ask clients and the central theme for most of the decisions regarding mortgage financing is: What’s the maximum mortgage payment you’re comfortable with? A mortgage loan application will establish what the lender feels comfortable approving for you in terms of monthly payment, but that’s not always the same as the amount you’re comfortable paying each month.
The goal during the preapproval process is to help you establish the price range you feel comfortable with so you can narrow your search. I commonly find that clients are approved for more than they’re comfortable with. Without a thoughtful discussion, the preapproval process could start you off in the wrong price range. It can also affect the decisions you make about your loan program and selecting between fixed rate and adjustable-rate mortgages.
Step 2: Know Your Real Budget
We can apply the same concept to your down payment. From your loan application we learn what you have available in various accounts. But what’s even more important is to understand how much of that savings you’re willing to use to buy a home. There may also be ways to accumulate additional down payment funds through your family or by borrowing against other assets that we need to establish. Understanding the total amount you can invest in a home allows me as a loan officer to establish all of the possibilities, but also to demonstrate the benefit of investing more than the minimum down payment.
Step 3: Balance Savings and Debt
Another benefit of beginning the financing conversation long before you’re actively looking to buy a home is to understand your complete financial picture. You need to understand if the loan of a house could be overbearing to you or not and if you have cleared that step make sure to get an iva before moving forward with anything else. As protecting your financial status should be your number one responsibility. Too often, homebuyers think they need to be debt-free to qualify for a mortgage, but loan guidelines are built with an allowance for personal debt. An early conversation with a loan officer can also help you understand the smartest options while you’re saving for your down payment. Remember, a balanced amount of savings and debt is the goal!
While a certain amount of stress when buying a home is normal, the mortgage process can help you make smart decisions about your future home – and develop a better understanding of your overall financial picture. Remember that the most critical information has to do with you – your financial picture and goals. Apply your own standards to the process, and take the time upfront to learn what meets your budget criteria, and what the bank can approve for you. With this information in hand, you’ll know begin looking for your home in the right price range and with your financial future in mind!