Prepare to Buy a Home: The Finances

As you are beginning to look into buying a home, considering the financial route to purchase is a vital piece of the process. Here are a few tips to think through and get you started.

Paying cash for a home. Most buyers do not have this option, but on occasion, it is possible. If paying cash for a home would tap out the cash supply completely – the buyer should think about reserving some money back for emergencies and perhaps consider taking out a small mortgage. If paying cash for a home does not break the bank, then enjoy the blessing. Gone are the days that a “cash offer” can substantially reduce the sales price because pre-approved loans can have the same consideration for a seller. However, a cash offer can trump other offers in a multiple offer situation, but not usually in obtaining a substantial reduction in sales price.

Choose the right mortgage lender. The lender that you choose at this point is critical. The right mortgage lender will listen to your financial goals and advise you on the right product to accomplish them. You should be able to ask questions, understand the different options and be able to trust that they have your best interests at heart. Who you work with can flavor your experience and have lasting results. The best way to find a trustworthy lender is by referral. Then meet them, in person or by phone, to see if they are a good fit for you.

Get pre-approved for the loan. Getting “pre-approved” is different than being “pre-qualified” – which is just a cursory verbal review of your finances and does not prove your credit-worthiness. To get pre-approved is when the lender has verified income, debts, credit score and any other necessary documents. When you find the right home, you can now bring a stronger offer to the seller. The pre-approval is almost always as attractive to a seller as cash. And if there are multiple offers on a home, the “pre-approved” offer will always carry more weight than just a “pre-qualified” offer. Getting pre-approved for your loan puts the odds in your favor to secure the right home when you find it.

Getting pre-approved also helps narrow the home search to the price point that would meet you needs and financial goals. Don’t allow yourself to get on the emotional roller coaster of finding your dream home and then finding out that it would not meet your financial goals.

Carefully choose your mortgage. Now is the time to get sound financial advise and consider your long-term goals. Seek out council from trusted family members, financial advisors and your chosen lender. You should be able to weigh the cash out, monthly payment, interest rates and length of the mortgage. Remember that you could secure a 30 year loan and prepay the principle each month when possible, and significantly reduce the length of the mortgage on your own. Prepaying a mortgage takes discipline, but can be helpful not to be locked into the higher payment of a 15 year note.

Being financially prepared allows you less stress. When you take the time to understand the finances of buying a home, you are better prepared, not only to write a stronger offer to secure your dream home but also to understand the implications of a possible counter offer from the seller. Understanding the finances of buying a home helps reduce stress and to help the buyer think straight while the emotions are high and to be able to make fast decisions – as many times is needed when buying a home.

Understanding your finances and goals sets you on the right path to buy the right home at the right price and terms to meet your needs today and for tomorrow.

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