Be sure to check these items off your to-do list before you make an offer on a home.
When you're buying a home for the first time, it's imperative you make smart decisions so you don't end up regretting your investment. After all, you'll be spending a lot -- and likely borrowing a lot -- to buy your home. And it can be hard to know how to do this wisely if you've never made such a large purchase before.
The good news is that checking a few simple tasks off your to-do list can maximize the chances your home purchase will provide you with a nice place to live and help you build wealth over the long term. Here are three things you should be sure to do.
1. Decide how much to spend
When you apply for a mortgage loan, the bank will let you know the maximum loan amount you're approved for -- but you don't want to let your lender decide your housing budget. Instead, consider the cost of homes in your area, your monthly budget, and your other financial goals.
By balancing the cost of the kind of house you want with the impact the purchase will have on your monthly expenses and ability to accomplish your objectives, you can make the best choice about how much home you can really afford. If it happens to be less than the bank approves you for, stick to your guns and let your needs determine how much you'll spend.
2. Shop around for loan options
There's a lot of variation in interest rates, fees, and other loan terms from one mortgage lender to the next. You don't want to pay more to borrow than necessary, so be sure to get quotes from multiple lenders. By comparing rates, you could save yourself tens of thousand of dollars in interest over the life of the loan.
It's really easy to get multiple mortgage rate quotes now, and lenders will let you compare rates without it affecting your credit score, so there's no reason not to shop around.
3. Get pre-approved for a loan
When you've found a lender offering you competitive terms, get pre-approved before you start shopping for a home. Pre-approval means submitting your financial documents and letting the lender decide in advance if they're willing to allow you to borrow. You may even have the option to lock in your interest rate during this process.
A mortgage pre-approval isn't an absolute guarantee that you can borrow -- things could change between pre-approval and closing that disqualify you. But pre-approval does involve a thorough review of your finances, and in most situations you'll end up getting the loan you've been pre-approved for unless your situation has changed drastically in the interim.
Pre-approval will help you get a clear idea of how much you can borrow and what rate you'll likely pay. But the biggest reason to do it is because many home sellers won't accept an offer on their property without pre-approval. And you don't want to lose out on the home of your dreams because you're unable to provide proof that a bank will lend you the funds.
By taking these three steps, you can find the right loan, maximize your chances of being able to buy a home, and ensure you get the most affordable rate. Don't skip out on any of them if you want to make sure your first home purchase isn't one you regret.
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