Buying a home is a process. Sometimes it’s a long process. Other times it’s a short process. Regardless, you must have a clear understanding of what to expect and the steps you can take to proceed efficiently.
Unless you have enough cash to buy a home outright, you’ll need to secure a mortgage. This brings about many questions, such as those associated with when and how to apply for a mortgage and which product is best for you, the home you’re buying, and your future.
The question of whether you need to find a home before applying for a mortgage is often misunderstood. There’s no requirement to find a home before contacting a lender and completing a mortgage application. In fact, it makes more sense to obtain a pre-approval early in the process. This gives you a clear idea of how much of a home you can afford.
Here are some of the many details to think about as you inch closer toward a pre-approval:
- Budget: Just because you qualify for a specific amount doesn’t mean you have to take it. Know your budget and what you can afford to spend on housing every month. Don’t let your mortgage company, broker, or loan officer make this decision on your behalf. You know your money better than anyone else.
- Loan type: Are you interested in a conventional, fixed rate mortgage? Are you most comfortable with 15 or 30 years? Will you consider an adjustable rate mortgage? Talk to your lender about every available option so that you can make an informed and confident decision.
- Down payment: In today’s lending environment, a down payment is a must. It’s best to put down 20 percent or more, as doing so allows you to avoid private mortgage insurance. Also, a higher down payment results in more equity from day one. This lessens the risk of finding yourself underwater.
All of these details go a long way in helping you apply for a mortgage before you decide on a home.
Should you wait too long to receive a mortgage pre-approval, it could hinder your ability to secure a loan in a timely manner. And if that happens, you could miss out on the home of your dreams.
So, the second you decide that you’re in the market for a new home is the second you should find a lender, get pre-approved, and make all the critical key decisions regarding your purchase.