Buying a home is one of the biggest financial decisions you’ll ever make. For that reason, it’s imperative that you know exactly what you’re doing.
Before you begin your home search, you need to answer this very important question: are you buying a home with a mortgage or do you have enough cash on hand to complete the transaction?
Most people realize that a mortgage is the way to go, as this allows them to make a purchase without depleting their cash funds. When combined with a 20 percent or larger down payment, a mortgage is a good option.
But before you get pre-approved for a mortgage, here are some key questions to answer:
How much of a mortgage can you afford?
Don’t base this off how much a lender says you can afford each month. Base it off your budget and what you know you’re comfortable spending. A monthly payment that makes you uncomfortable is one that could have you regretting your decision at some point in the future.
Do you have the money to make a down payment?
There was a time when purchasing real estate with no down payment was possible, but those days are in the rearview mirror. Today, you generally need five percent or more to secure a loan. And preferably, you’ll have 20 percent for a down payment. With this, you gain immediate equity in your home, while also avoiding private mortgage insurance (PMI).
Are you familiar with all the expenses of buying and owning a home?
Don’t get so caught up on the cost of the home that you overlook other expenses, including but not limited to closing costs, taxes, HOA fee, insurance, and maintenance. All of these expenses will impact you now and/or later, so you need to plan for them upfront.
Once you answer these questions, speak with a minimum of three mortgage lenders about your wants and needs. They can walk you through the pre-approval process, while answering your questions along the way.
Don’t assume that one lender and mortgage product is the same as the next. Keeping an open mind will allow you to make an informed and confident decision.
Buying a home with a mortgage isn’t something to take lightly. It’s a big decision, so don’t dive in before answering the questions above.
Once you feel good about your situation and have a clear vision on how to move forward, you can then take action.