Now is currently a great time to buy a home. With interest rates continuing to fall and the spring selling season upon us, we are in the midst of a perfect buying storm. Most prospective buyers have an idea of the process but aren’t exactly sure of where to start. Prior to contacting your local real estate agent there are a few steps you need to take. These steps will not only make the process easier but will give you a better understanding of what you can afford. If you have been thinking about starting the buying process, here are the first two essential steps you need to take.
Pre-Qualification.Everything starts with the pre-qualification process. Sellers will not entertain offers from buyers unless they know they can purchase the property. You can get prequalified from a mortgage broker or local lender. This usually requires a brief application including a check of income and credit score. There may be issues with your credit or how you document your income that could limit your program options. After a quick review your lender will give you an idea of what programs you are eligible for and how high your monthly payment can be. It is important to note that your preapproval amount may not be what you are comfortable paying every month. This is simply the highest loan amount and monthly payment that you qualify for. During the application you need to be as honest as possible with your lender as far as income, down payment amount and total obligations. Even the slightest change from what you state on the application could cause your approval to change.
Budget. As we mentioned, it is important to distinguish between what you may be approved for and what you can afford. In addition to your monthly mortgage payment you also need to account for property taxes, homeowners insurance and private mortgage insurance if you are putting down less than 20%. You also need to make a list of total household expenses. If you have been renting you may not pay the water bill or know all of the expenses involved with owning a home. You also need to have an idea of how much money you will have left over after your down payment and closing costs. There are several items you may need to buy after you move in. Little things like a lawnmower, dining room table or a new TV will quickly add up. It doesn’t do you much good buying a home if you are not comfortable with the payments after you moved in. Take some time to calculate a number that you can afford for your total monthly mortgage payment. Your lender will back into your purchase price range and your real estate agent can find properties that fit with your budget.
The home buying process truly begins after you run your numbers. Once you have your pre-qualification letter in hand and know your price range, you can set up showings and start making offers.