Why You Need More Than A Pre-Approval For A Mortgage

by Lili Patch 11/07/2018

There are so many factors that go into finding and securing the financing to buy a home.   While lenders require quite a bit of information for you to get a loan, you still need to be aware of your own financial picture. Even if you’re pre-approved for a certain amount of money to buy a home, you still need to dig into your finances a bit deeper than a lender would. The bottom line is that you can't rely solely on a lender to tell you how much you can afford for a monthly payment on a home. Even if you’re approved to borrow the maximum amount of money for your finances to buy a home, it doesn’t mean that you actually should use that amount. There are so many other real world things that you need to consider outside of the basic numbers that are plugged into a mortgage formula.   


Run Your Own Numbers


It’s important to sit down and do your own budget when you’re getting ready to buy a home. You have plenty of monthly expenses including student loan debt, car payments, utility bills, and more. Don’t forget that you need to eat too! Think about what your lifestyle is like. How much do you spend on food? Do you go out to the movies often or spend a regular amount of cash on clothing? Even if you plan to make adjustments to these habits when buying a home, you’ll want to think honestly about all of your needs and spending habits before signing on to buy a home. 


Now, you’ll know what your true monthly costs are. Be sure to include things like home insurance, property taxes, monthly utilities, and any other personal monthly expenses in this budget. If you plan to put down a lower amount on the home, you’ll also need to include additional insurance costs like private mortgage insurance (PMI).


The magic number that you should remember when it comes to housing costs is 30%. This is the percentage of your monthly income that you should plan to spend on housing. Realistically, this could make your budget tight so this is often thought of as a maximum percentage. By law, a lender can’t approve a mortgage that would take up more than 35% of your monthly income. Some lenders have even stricter requirements such as not allowing a borrower to have a mortgage that would be more than 28% of monthly income. This is where the debt-to-income ratio comes into play.


As you can see, it’s important to take an earnest look at your finances to avoid larger money issues when you buy a home.  


About the Author
Author

Lili Patch

Radio Personality turned Realtor; I welcome the opportunity to turn house selling and house hunting into a fun and educated experience. House buying should feel like you're shopping with a friend, and I will keep you in the loop the entire time so you will not be wondering what you just signed or what happens next. It's that seamless, and we may even have lunch or dinner. I do this because when I started my real estate journey on the east coast, buying my first condo at the age of 18, I was clueless. I wished I had someone who had made that a stress free transaction- but it wasn't, and thats how I got the Real Estate bug. Let's take a step back first though to my first "job", I studied communications and entered the broadcasting industry. Through the years I purchased some more properties, and felt there was a gap that needed to be filled in the Real Estate profession. I set the bar very high on skill set & customer service. I have Real Estate Licenses in 4 states, which means I have more education, and training than most agents. My level of knowledge, strategy and experience is what sets me apart. I know how important being an astute negotiator is, being relentless, and answering the phone when it rings. I have earned certifications as a Seller Representative Specialist (SRS), a Certified Home Marketing specialist (CHMS), and a Pricing Strategy Advisor (PSA).

Meeting with people and traveling both east coast and west coast has given me a broad appreciation of the different laws, protections, and scenario's you encounter in real estate. Having the benefit of my communication background coupled with the vast knowledge of multi-state experience has been the backbone of my success.