Very few first-time buyers pay for their home outright. They need loan financing to pull it all together. First, you save up the down payment (no less than 5% of the purchase price) and you borrow the rest with a mortgage.
A mortgage is basically a loan used for real estate transactions in which the property is essentially collateral for the loan. If you don’t make the payments, the bank/lender can seize ownership of the property.
Because mortgages entail a large amount of money and are backed by a physical asset, they allow most people to borrow money at a relatively low interest rate and pay it off over a specific term, typically five years.
Let’s first make sure you are strong enough to qualify for a mortgage. If you can’t do that, then nothing else matters. (Unless of course you can afford the home outright and do not need financing)
You can ask your mortgage broker to see if you would qualify for a mortgage in the price range you are thinking of. People refer to this as a pre-approval. Be careful here – the truth is a pre-approval is not a cast iron contract. And it is pre-approving you, not the property you may end up trying to buy.
But it’s definitely worth something – if your broker says no way you are ready, you can be pretty sure you are not. And you will learn what you still have to do to get ready for prime time and when that will be.
Before you make that purchase and charge it to your credit card, if you cannot pay the balance in full at the end of the month, then don’t do it.