After years of improving your personal finances you might feel that now’s the right time to buy a home. However, before you can start bidding on houses, you need to decide how much to spend on a property.
A mortgage pre-approval is the next logical step. A lender will pull your credit report and review your income; and based on this information, determine what you can afford to spend on a house.
Although pre-approvals can accurately estimate affordability, there’s always a chance that a lender will pre-approve you for more than you can realistically afford to spend each month.
The truth is, you could have monthly expenses that aren’t listed on your credit report, such as daycare, insurances or private debts. Since your lender doesn’t know about these expenses, what you’re actually able to afford each month could be hundreds less than what the lender thinks you can afford. This is where discernment comes into play.
As a smart homebuyer, you need to do what’s best for your money, and you shouldn’t buy a house at the top of your budget just because the funds are available. A mortgage is a 30-year commitment, and if you can’t make your payments, there’s the risk of foreclosure or a damaged credit score. Therefore, you need to set a budget that’s within your means.
Understandably, staying on budget when buying a house is much easier to say than do. And as you might discover, different factors can push you over-budget. However, there are ways to avoid getting in over your head.
1. Work with an agent who respects your budget.
Your real estate agent will ask to see a copy of your pre-approval letter. Therefore, he or she will know how much you qualify for at the beginning of the search. Regardless of how much you can get from the bank, explain to your realtor that you only want to see houses within a certain price point to keep your mortgage affordable.
The majority of agents will happily comply with your request, but this isn’t always the case. Others may not respect your wishes, and continually push the envelope hoping that you’ll fall in love with a higher-priced home.
However, don’t let a realtor pressure you into buying an expensive home. If your agent insists on showing houses that you’ve specifically stated were outside your budget, find another agent.
2. Don’t get caught in a bidding war.
If you submit an offer for a property that has multiple bids, there’s a chance that you’ll get caught in a bidding war with others buyers. And sometimes, offering more than the asking price is the only way to win a war.
This is okay if you can afford a higher amount. However, if you increase your asking price, and the seller responds by increasing his asking price, you can inadvertently get caught up in the bidding frenzy and offer more than your budget.
If you’re competing with another buyer, determine the maximum you’re willing to pay. Be prepared to walk away if the price gets too high.
3. Don’t buy a house to keep up.
Although you know how much you can comfortably spend, you could give into pressure and purchase a house to keep up with your peers.
Understandably, it might be difficult to purchase a less expensive or modest home when those in your circle have big, beautiful homes. However, at the end of the day, these people are not paying your mortgage payment. If you default on the house payment, it’s your credit score that suffers — not theirs.
Buying a home is a major deal, and as a first-timer you could get caught up in the excitement and overspend. However, one of the biggest joys of home ownership comes from knowing that you can manage your mortgage payment every month.
Union Mortgage has some of the lowest mortgage rates. Apply today and find out how much you could be saving on time and money.
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