Buying a home is a major investment. As a result, buyers must enter into the process ready to make some challenging decisions.
There are certain steps you can take to ensure you’re completely satisfied with the home you choose, and the loan amount you receive. CNBC urges potential buyers do the following before purchasing a property.
Determine a budget
Depending on your financial background, you may get approved for a loan amount that far exceeds your budget. It is important to only apply for an amount you can reasonably afford, as this is key in preventing foreclosure if there is a change in your finances during the term of the loan. In addition to mortgage payments, you should also consider property taxes, home insurance, and costs for maintenance and repairs.
Check your credit score
Your credit score has a major impact on your ability to get approved for a home loan. It also determines your interest rates, which can raise or lower your monthly payments. While it depends on the lender, most home buyers must have a credit score of at least 620 to get approved. If you have a higher credit score, you will also receive more favorable interest rates.
Mortgage pre-approval is the process of getting approved for a home loan before you are actually ready to buy. You provide the lender with financial information, and they perform background checks to determine the loan amount you will qualify for. Pre-approval provides peace of mind to sellers, as they can rest assured that the prospective buyer is financially prepared to close the deal. Pre-approval is also beneficial in competitive markets, as it may give you an edge over other home buyers.
There are other factors to consider, such as the location of the home or how large a down payment you anticipate putting down. By performing your due diligence now, you can secure the home of your dreams at a price you can afford.