Purchasing a home can be a stressful time. In the rush-rush process that can occur, it is easy to get caught up in sales price and mortgage numbers without really thinking them through. Nearly all home buyers are going to need a home loan of some sort when they purchase a house. Fortunately, the mortgage industry has evolved to the point where nearly everyone can get a loan. This is even true if you have bad credit or just popped out of bankruptcy. The question is not so much whether you can get a loan, but whether you should take the loan you are offered. This may sound odd at first, but let’s take a closer look.
In a perfect world, every home buyer would get pre-approved for a mortgage before they go house hunting. The pre-approval process works just as the regular mortgage application system works. The difference is you do it before you are under the gun after making and having an offer accepted on a home.
Assuming you are successful in getting pre-approved, you are going to be presented with a number by the lender. For instance, the lender may say you are pre-approved for a $400,000 loan. We will leave down payments and loan to value out of the discussion to make things simpler. The question, in this case, is should you hunt for a home in the $400,000 range? Most home buyers do just that and it may be a mistake.
It is vital that you understand that the amount a lender is willing to give you is not necessarily what you can afford to spend on a home. How can this be? Well, a lender is running a mathematical equation that spits out an answer. Humans and our lives are not so precise.
Being approved for a $400,000 loan is great and all, but are you going to be able to make the monthly payments comfortably? You will note the use of the word “comfortably.” It is subjective. Some people want a lot of cushion while others have no problem living by the edge of their teeth. Only you can decide, but it is a decision you need to realize you must make.
The point of home ownership is to build wealth, live happily and perhaps raise a family. It is not to spend sleepless night after sleepless night worrying about the monthly payments, property taxes and so on. Just because a lender says you qualify for a large loan doesn’t mean you should take it. Figure out the monthly expenditures you are comfortable with and go with a house that fits within the profile.
Raynor James is with FSBOAmerica.org - free information on mortgage loans.
