When you decide the time is right to buy a home Mortgage it can be one of the biggest decisions you will ever make. It is an exciting time. But, before making decisions too quickly, you need to be cautious and take the proper financial steps to ensure your financial investment is successful. You must have your financial affairs in order and know what you can afford.
Financial Steps Mortgage
The first thing you should do when considering the purchase of a home is to prequalify for a mortgage. There is no cost associated with the prequalification process. Your mortgage lender will need your financial information such as income verification, property appraisal and credit history. After going through your finances, your lender will begin the process and will be able to tell you how much you will be able to borrow.
By going through the prequalification process, you will know exactly how much you can afford, saving you the trouble of looking at homes that are out of your price range. Prequalifying has a few benefits. First, it will give you the power to negotiate with a seller which may save you thousands of dollars. Second, prequalified buyers are given preference over others in a multiple offer situation.
The Mortgage Loan Process in 9 Steps
Also, you will need to be prequalified in order to work with a realtor. Finally, you will be applying for the correct loan amount based on your prequalification. – Mortgage
Next, you must set a home buying budget. Although prequalification will help in determining how much you can borrow, you must go through your finances and determine what you actually can afford. Decide on the features you would like for your new home to have.
Then set a prioritized list of those features. Decide how much you can afford for the downpayment. A typical downpayment can range from 5% to 20%. Often, the seller will pay the closing costs but you will need to factor those into the budget if it is your responsibility to pay closing costs. You should also take into consideration that your mortgage should be no more than 25% to 33% of your monthly gross income.
The next step in buying a home is to get preapproved for a mortgage. The process of getting a preapproved mortgage loan occurs after you have found a home. This process is similar to prequalification but is much more thorough. Your lender will review your financial history in great detail.
You will most likely be required to go through an application process. This process is unique to each lender. One lender might preapprove you for an amount less than another lender would. Different lenders have their own underwriting and preapproval process for determining how much money to lend.
You can use your preapproval amount as a bargaining tool in negotiating down the price of the home you have selected. Sellers will often come down a few thousand on a home if they know they have a definite deal.
Following these steps will help you make smart choices when buying a home and help you avoid becoming “house poor” by buying a home you couldn’t really afford. You will have a better idea of what your finances look like and what your finances will be like once you buy a home. You will also be in a better position to bargain with the seller once you have taken these steps.