Like anything else, before buying a house, you have to know how much you have to spend. The first step to successfully buying a home is knowing what you can afford.
Before even starting your search for that perfect home, it is often best to consult with your lender or mortgage broker to get a mortgage pre-approval first. This is because once you do have a pre-approval, you will know how much money you have to spend and what price range of houses you can afford.
Some people make the mistake of setting a price limit themselves, saying this is the amount they feel comfortable with. The problem with this is that most do not really have a method or formula for reaching this number. Your mortgage specialist will look at your numbers to help determine what you can really afford. He will analyze everything from your income, assets, debt, and savings to your credit record and standing. Through these, he will be able to offer you the best mortgage for your current state.
You never know, you might get pre-approved for a greater amount than you would have thought. Some people might then be too focused and concerned with a big amount, but remember that you don’t really have to spend it all. It is basically just a limit of how much you can spend. Plus, divided over 25, 30, or 35 years (depending on the duration of your mortgage), the amount is probably within your means.
However, you should also break it down yourself – consider your daily, weekly, and monthly expenses and make sure that you truly can afford it. Sometimes the approved amount and “your amount” would just not equal.
Realtors® typically would want to see a pre-approval too before helping you look for a house. This shows them that you are serious in buying a home and not just wasting their time. It also reduces the chance of the heartbreaking situation where you find that “perfect” home only to realize that you can’t afford it.
There are typically two ways of obtaining a mortgage: either through a bank or a mortgage broker. Some people tend to feel more comfortable dealing with banks because they already do personal banking with them. However I would recommend dealing with a mortgage broker because they deal not only with banks but also lenders as well. So they have more options to choose from and hence can generally beat the bank’s rates.
Whatever the means by which you obtain a pre-approval, what’s important is that you do before you start looking. Once you have, house hunting will be much easier and Realtors® will be more comfortable showing you different places that they know you can purchase.
And remember that even though you have been pre-approved, nothing is guaranteed. There are instances where the loan does not follow through because of last minute changes to your credit score, like missing your credit card payments or financing another car. It is often best to hold off on any significant expenses until after the keys are in your hands.
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