Buying a home is a very big and important step and it should not be taken lightly. It is one of the biggest financial steps a person will ever take, especially if they are first-time buyers. After years of renting, many decide it is time to buy, time to invest their money in their own real estate, and pay mortgage rather than rent. Buying a home is a complex process and there are many things to consider even before starting the search for your dream home. Starting a home loan is one of those things, and in order to go through the buying process as smoothly as possible, it is important to first get your finances in order and start a loan before setting anything else in motion.
Starting a home loan before searching for a house will help you get perspective on what and how much you can afford
You need to know how much you spend monthly and how much you can set aside for your loan payments. This is very important because it will in turn determine approximately how big of a loan you can get and what kind of house you can buy with that money.
First of all, you will need to have some savings, and it is not wise to even start thinking about buying a home before you have a savings account with enough money for a few months of living expenses. The wise thing to do is to thoroughly review how much money you spend every month – make sure to account for everything, from utilities, food and clothing to the activities you engage in, any savings that you set aside every month, car expenses, and anything else you can think of. This will help you come up with a financial plan, i.e. find out exactly what you can or cannot afford, and how the future mortgage payments will fit into your budget.
Starting a home loan before searching for a house will gain you credibility with both realtors and house sellers
Realtors and sellers need to know and have some proof that you are financially capable of buying a house. A realtor needs to know your price range so that he can look for houses that suit you esthetically and, what is more important, that fit into your budget and suit you financially. A seller needs to have proof that you can genuinely afford their house and that you will not back out once the deal is made.
After you have reviewed your finances and come up with some sort of financial plan and budget, you should start exploring your loan and mortgage options. You can meet with lenders and see what kind of loan program each offers. With the lenders you will once again review your finances and important details connected to them, such as any outstanding debts, what kind of assets you have and how much, and you might also go over some available local programs that offer financial assistance, for example with the down payment. Once you have chosen a good loan for yourself and you have qualified for it, you are set for a mortgage pre-approval.
It has already been mentioned, but it is worth mentioning again – majority, if not all of the sellers require a mortgage pre-approval when you make an offer on the house. It is a free and non-binding process that presents you to sellers as a serious, qualified buyer. It determines if your credit and income will qualify you for a mortgage.
In general, you have to have good credit history, a history of paying your bills on time, a stable monthly or yearly income, and preferably some savings. You will also need those savings in order to make a down payment on your house, which can be anywhere between 3.5 and 20 percent of the purchase price.
Now that you have carefully planned everything, started the process of a home loan, and have qualified for a mortgage pre-approval, you are ready to start the search for your dream home. Your preparedness and initiative will make a good impression on both the realtors and the sellers, making the process of buying as painless and as smooth as possible.