Before you consider buying a home, it is important to understand each step toward becoming a homeowner. In this blog series, we will outline the five major steps you should take long before house hunting and choosing a color scheme. Financial preparedness and mortgage readiness should be top priority for all types of homebuyers. Whether you are a first-time homebuyer or seasoned veteran, the home buying process is a detailed and complicated process that requires a great deal of long-term financial planning.
Expenses and Budget
One common question for homebuyers is, “What can I afford?” A monthly household budget that outlines your expenses will show you what you should borrow without breaking the budget. Be sure factor in your pre-tax income, all debt payments (credit cards, car loans and leases, or students loans, etc) and your savings. Make a Budget printable worksheet from Consumer.gov is a great place to start and it’s available for free.
Once you’ve set a budget and identified an appropriate monthly payment, your lender will translate that payment into a mortgage loan that fits your budget. When reviewing the types of mortgage loans, it is important to have a clear understanding of the terms and monthly payments. Be sure to consider what you should borrow not what you could borrow. The first step toward obtaining financing is prequalification, which tells you the amount and type of loan you’re qualified to receive.
The next installation in the series is Down Payment: Saving and Seeking Assistance.