Owning a home is a dream for many, but with proper understanding and patience, owning a home can be a dream that comes true. Unfortunately, many buyers are not prepared for the stress involved with securing a mortgage and closing on a home. By avoiding these mistakes, you can make the process of buying a home less stressful, more affordable, and an overall better investment.
Not Getting Preapproved
If you are like most buyers, you will need a mortgage to buy a house. Contacting your bank or preferred mortgage lender is a great first step. However, most banks and lenders will conduct a prequalification to help determine if and what kind of mortgage you will qualify for. This qualification is helpful, but it is not necessarily a guarantee that you can secure the mortgage.
A preapproval is also offered by most banks and mortgage lenders. This preapproval is a bit more involved because not only will the lender check your credit, they will also want to see proof of income and what bills you pay per month. This allows the lender to determine how much home you can actually afford to buy and if your income and credit is strong enough to carry the mortgage successfully.
A preapproval is also beneficial when you are ready to make an offer on a home you want to buy. Sellers and agents are more inclined to accept a reasonable offer if the buyer (you) have a preapproval letter from a bank or lender.
Buying the Maximum Preapproval Amount
Again, a preapproval is designed to tell you how much home you can afford to buy using your debt to income ratio. Banks use your credit report, income statements, tax returns, and bill statements to determine what mortgage you can afford to pay each month while still staying up-to-date on your other bills.
Remember that a preapproval from your bank does not take other costs into account. Education costs, such as tuition for you or your children, utilities, entertainment, travel, and insurance are usually not covered into your debt to income ratio.
Also, buying the maximum amount you qualify for will leave very little room for other expenses, such as emergencies, surprise repairs, and savings.
Most buyers are surprised to hear the amount of home they qualify to purchase. Just because you qualify for this larger amount, does not mean you should actually buy a home priced at this maximum amount.
Keep this advice in mind when looking at single family homes to buy.