You'll need cash for various "closing costs," and for a down payment (20% is standard, unless you qualify for an FHA-backed loan). Closing costs typically include not only the transaction costs but homeowners' insurance, mortgage insurance, your share of that year's property taxes, and more. The total is usually around 2%-3% of the house price, depending on what state you live in, what kind of mortgage you get, and more -- see http://www.bankrate.com
for a state-by-state analysis of the loan portion of buyers' closing costs
Buying a house involves a lot of upfront effort, and you won't want to have to do it again in a year or two. Buying a house also involves expensive "transaction costs" like loan setup fees, property inspections, and more -- sometimes in the thousands of dollars. And if you need to move during a market slump, you could have to sell for less than you purchased for -- plus pay commissions to the real estate agents (averaging 5-6% of the house purchase price, or $5,000 for every $100,000).
When picking a mortgage, you usually have the option of paying additional points -- a portion of the interest that you pay at closing -- in exchange for a lower interest rate. If you stay in the house for a long time -- say three to five years or more -- it's usually a better deal to take the points. The lower interest rate will save you more in the long run.
Getting pre-approved will you save yourself the grief of looking at houses you can't afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.
Coldwell Banker Residential Brokerage