The first step in purchasing a new home, townhome or condominium is loan pre-approval.  The process does more than tell you the maximum amount a lender will let you borrow.  It also helps you answer some questions you may not have even thought of

1. How long do you intend to be in the property?
2. Do you want to use the loan to pay equity, or is an interest only loan your best option?
3. Is your strategy to buy the most home you can afford, or are you determined to stay within your budget?
4. Are you certain you qualify for the home you want to buy?

1.  A good loan officer will want to know how long you intend to stay in the property.  If you know you will only be there 3 to 5 years, a fully amortized* fixed rate loan may not be your best solution.  However, if you plan to be in your new home ten years or more, a 30 year fixed rate loan may be the right loan for you.

2.  Most people don't realize how little equity they build the first few years of a fully amortized home loan.  A fully amortized 30 year fixed rate loan of $1,500 may only pay $50 on the principal every month.  An interest only loan on the same balance may only have a $1,300 a month payment.  If you are only going to be in the home 3 to 5 years, why pay the extra interest?  Most interest only loans allow you to make principal payments.  If you need a short term loan and want to pay down the principal, you are actually better off with an interest only loan. 

3.      Most home buyers suffer from sticker shock when they first find out what their house payment is.  The choice then becomes whether you want as much home as you can afford, or accept less home and stick to your budget.  You'll only know for certain where you stand after your loan officer runs the numbers.

4.      Loan pre-approval can be full of surprises.  Before you start looking for your multi million dollar mansion on the hill, make certain you qualify for the price range you want to look in.  You'll save more than time and embarrassment.  Once you begin looking at homes in the $2,000,000 price range, you'll find it more difficult to find something in the $500,000 price range you like if that's the loan amount you qualify for.