Preapproval by Dave Ramsey
The best way to buy a home is with cash. It may sound crazy, but people like you do it every day! If that’s not feasible for you, you’ll need a home mortgage loan.
How do you get preapproved?
In a quick conversation with you about your income, assets and down payment, a lender can prequalify you to buy a house. Getting preapproved takes a little more work—a lender will need to verify your financial information and submit your loan for preliminary underwriting. But it pays off when you begin your home search since a preapproval letter shows that you’re a serious buyer.
How do you know which mortgage option is right for you?
Bad financing turns your biggest asset into a liability. That’s why getting the right mortgage is so important! Setting your boundaries on the front end makes it easier to find a home you love that’s in your budget.
Here are the guidelines we recommend:
- A fixed-rate conventional loan. With this option, your interest rate is secure for the life of the loan, leaving you protected from rising rates. Any other mortgage option is a terrible idea.
- A 15-year term. Your mortgage payment will be higher with a 15-year term, but you’ll knock out your mortgage in half the time and save thousands in interest.
- A monthly payment no more than 25% of your monthly take-home pay. This leaves plenty of room in your budget to achieve other goals like saving for retirement or putting money aside for your kid’s college fund.
Once you know how much you can afford to spend on your new home, stick to it. And if you’re buying a home with your spouse, make sure you’re both on the same page about your budget.