Most homebuyers would agree that the most fun part of buying a house is viewing properties or visiting open houses. It may be because there is something so exciting and satisfying about picturing what your life would be like in a new place. This is especially true if the house you’re eyeing has a big kitchen, multiple rooms, a large backyard, and other desirable features.
While there is nothing wrong about really liking a house, there is always the risk of heartbreaks if the one you want is over your budget. This is why before you start viewing homes, it is best to sit down with a lender and get preapproved for a loan. This involves checking of your credit report and finances to find out if you qualify for a mortgage and the amount you can borrow.
Avoid disappointments and cut shopping time
As getting preapproved lets you know how much you can afford, you won’t have to waste time viewing houses that are too expensive. Realtors and sellers would also consider you a competitive buyer as making an offer with a preapproval letter indicates that you’re serious and more likely to seal the deal. Reputable mortgage companies in Utah share some of the things you need for a loan preapproval:
- Credit report (preferably with a good or excellent score)
- Proof of income (W-2 statements from the past two years, latest pay stubs, tax returns, and others)
- Verification of employment
- Proof of assets (bank and investment account statements)
- Personal information documentation (Social Security number, employment details, address)
- Go lower than what you’re approved of
Getting preapproved before shopping for homes is a wise move, but you shouldn’t base the amount you borrow on what the bank or the lender says you can afford. This is because in many cases, the loan that you are preapproved for may be bigger than the amount you’re planning to borrow. The figure indicated on the preapproval is the maximum amount the lender is willing to lend you.
If you, for instance, qualify for a larger mortgage, you may be tempted to buy a more expensive home. While this seems like a harmless idea at first, it could haunt you later on, especially if financial problems come up. You should also know that even though you qualify for a larger loan, it does not always mean that you afford the monthly payments that go along with it.
Set a budget and stick to it
When deciding how much you can comfortably afford, it is best to look into your budget and consider your financial goals. You can also follow the 28/36 rule, which states that all your housing costs (including mortgage payments, taxes, and other fees) should not go beyond 28% of your monthly gross income, while all your monthly debts should not exceed 36%.
Resist the temptation to go overboard as you might end up house poor or be forced to skimp on things that are important to you. There is also the risk of foreclosure if you default on the loan or can no longer continue paying your monthly bills. It is better to think about the long run when creating a budget and avoid overextending yourself.
Being informed and prepared when venturing into the process of home buying. Talk to a reliable lender to learn more about the financing and how much you can actually afford.