It's a good idea to sit down and re-evaluate your financial situation and your financial obligations at least once a year, but it's especially important to do so when you're considering purchasing a house. If it's your first home purchase, this is especially an important exercise because you'll be taking on an entirely new monthly financial obligation. Even if you've been accustomed to paying a monthlyrent payment, often times, a monthly mortgage payment is more expensive.
Take some time to sit down and include all those that will be financially affected by this purchase decision, such as a spouse or family member. Here are some of the questions to get you started on this exercise.
- What are your financial and personal goals?
This will help you and anyone else involved in this purchase decision understand where you want to be in the short- and long-term future. Are you carrying debt from other sources—like a school loan, a credit card, or retail merchant—that you'd like to pay off? How soon can that be paid off, and then can funds that were attributed to that obligation be re-purposed to help pay your monthly mortgage payment?
- What kind of monthly payment can you afford?
Establishing this early on will help you settle on a purchase price or a price range you're comfortable with. Remember, if you have a monthly payment in mind before house shopping, you can have a better idea—after consulting with a mortgage loan professional—of the price ranges that meet your monthly budgetary needs. The selling price of the home will be influenced by things such as the size of the home, size of the property, neighborhood, school districts, etc. Keep in mind that factors such as interest rates, loan type, and down-payment amount can have a considerable effect on your monthly mortgage payment.
- How is your credit?
Credit plays a significant role in what kind of financing you're offered, and ultimately what your monthly payment looks like. During the pre-application stage, you can discuss with your mortgage loan professional whether ordering and reviewing your credit report is the right decision for you. Knowing where your credit stands helps to forecast a more accurate payment scenario. If you're not satisfied with the state of your credit or with the loan options that your credit awards you, you can always take a step back and work to repair your credit. If that's the case, you may want to consult a credit professional for a plan to improve your credit worthiness.
- What items will you need to complete your loan application?
To properly prepare a pre-approval letter, it's necessary to have all your "ducks in a row." Because lenders are attempting to verify your credit history, work history, money management skills, etc., you'll be asked for a number of mortgage application documents. These necessary items may require that you contact your financial institution for copies of bank statements or contact your payroll department for copies of your paychecks.
- What types of mortgage loans are options for your situation?
Everyone's situation is different, and there are a number of loan options available with varying cash requirements, number of monthly payments, etc. Your loan officer will help determine which, if any, best fits your scenario.
The bottom line is that before you engage in a significant purchase like a house, it's best to get a "state of the union" snapshot on your finances. Nothing is worse than finding the home of your dreams only to find out that it's completely out of your financial league. Save yourself time and heartache. Equip yourself with knowledge of the homebuying process, and the goals that you want to achieve. Doing so may make this process a whole lot easier for you.
To learn more about buying a home, visit our website at www.swbcmortgage.com today!