You’ve been thinking about it for a while, and you’re finally ready to take the first step in buying a home: planning.

Before you’ve picked out a house, and long before anything has been signed, it’s important to start thinking about what you want in a home, how much you can afford and how mortgage contracts work.

We’ve discussed the 20 percent down payment myth in the past, but before you’re ready to pay cash up front, you’ll need to consider some logistics.

1. Review Your Finances

Right off the bat, you’ll need to make sure you can afford to own a home. You’ll also need to evaluate your credit score health.

Don’t fear the 20 percent down myth – you don’t need to fork over 20 percent of your home cost upfront. But it does make sense to determine how much of a mortgage you can afford and what size monthly payment fits with your budget. Generally speaking, you don’t want to put more than 30 percent of your monthly income towards housing.

“It’s important to know that there are many down-payment options that won’t break the bank, including programs that can help you get into a home with little money down,” says Sunrise Banks Senior Vice President and Director of Mortgage Sales Chuck Meier.

Check your credit score, too. A good credit score can get you lower interest rates. It also makes a lender more willing to underwrite your loan. If you need work on building your credit before starting the process, talk to a banker to understand what options and products can help you increase your score.

2. Get Pre-approved

The pre-approval process refers to a mortgage lender reviewing a potential buyer’s credit to determine whether or not they would be good candidates to receive a mortgage loan. Pre-approval also lets buyers know how much a lender is willing to loan them and provides guardrails for pricing when starting to look at houses.

It’s good to get pre-approved before submitting an offer for a couple of reasons. For one, it speeds up the process – if buyers already have a pre-approval letter, they can place offers on properties quicker. And they’ll have a better sense of what their budget allows; this will help narrow down their search by price.

Meier also emphasizes the importance of shopping around when looking for a mortgage.

“While most mortgage lenders and banks offer the same traditional programs, rates and products, many have something unique to offer. Shopping around lets you find the best loan officer, program and rates possible,” he said.

3. Understand That a Mortgage is a Contract

A mortgage is a binding contract. In fact, the term literally means “death pledge” in Latin.

Although homeownership is an exciting and rewarding experience, it’s important to know that by signing on the dotted line, you’re responsible for repaying your loan over a certain amount of time. And you’re not off the hook until it’s paid off.

Think about what that will mean for you down the road. Are you ready to take on a long-term commitment?

4. Balance Needs and Wants with Your Budget

There is a lot to consider when looking to buy a home. And it’s key to have an idea of what your wants and needs are.

Maybe one non-negotiable is a big backyard. Or, you might only consider buying a house if it has at least two bedrooms. Depending on your budget, you’ll likely have to compromise some wants for particular needs. Set clear expectations from the outset, and, if you plan to move in with a spouse or partner, be sure to communicate with each other in regards to what each person can and can’t live without in a home.

Be cognizant of how your budget plays into your expectations, too.

“Sometimes first-time buyers look to buy more than they can afford, without taking into consideration how a high monthly payment might affect their budget,” said Meier. “An expensive mortgage payment takes away from other expenses, including furniture and additional items needed for a new house.”

Still Have Questions? Contact a Lender Today

At Sunrise, we help make the home ownership process one that’s understandable and tailored to your specific needs. Contact a mortgage lender today to learn more about your mortgage options.