Making the decision to buy may seem more like a giant leap than a first step, but it doesn’t have to. The key is to do your homework and be prepared—whether you’re buying a home next year or next month. Determine what you can afford, consider the location and what you need in the home. If necessary, work with a lender or mortgage financing professional to determine your options including how much you will need for a down payment. A pre-approval letter always expedites the contract process when you’re ready to make an offer on a property.
What can you afford?
If you want to purchase a home, you’ll need money to pay for it. And, most likely, you’ll need a mortgage. But despite what you may have heard, getting a loan may not require a perfect credit score or a huge down payment. However, it is helpful to get your finances in order before you start housing hunting or before you speak to a lender.
Here are some important steps to help you evaluate just how financially ready you may be to purchase.
- Determine what’s affordable
- Understand your credit
- Review your finances
- Save for a down payment
Understand what you can afford. If you want to buy a home, you may need a mortgage to finance the purchase. But how much mortgage do you need? Take a close look at your budget to see how much you’re spending each month on housing and what’s affordable for you (i.e., can you spend more, less, need to stay the same?) Don’t forget, you’ll also need to budget for other expenses to maintain the home as well as general homeownership costs—and these may be not be in your current budget if you are renting.
To help, use the handy tools to estimate your affordability and potential mortgage costs (mortgage payment, down payment, interest, etc. on my website under Useful Tools.