Why Spend The Max Amount When Buying Your First Home?
If you are in the market for your first home, one of the smartest things you can do is get pre-approved for a mortgage. Not only will the pre-approval process tell you how much you can spend on a home — it will also reassure sellers that you are serious, and that you have the financial wherewithal to close the deal.
The pre-approval letter is so important that many buyers will cut you a break on the sale price or make other concessions if you have that document in your pocket. The pre-approval process takes a bit of time and effort, and you will need to provide documentation of your income in order to qualify. All that hard work will pay off; however, when you find a home you love and want to make an offer to the seller.
Getting pre-approved for a mortgage is a smart idea, but it is not the only consideration when buying your first home. Just because the pre-approval results say you can buy a $250,000 home does not necessarily mean you should. It can be tempting to spend up to your pre-approval limit, but there are good reasons to hold back and buy fewer home that the bank says you can afford.
For one thing, many mortgage brokers still work on commission, and that gives them an incentive to push the limits when calculating what you can afford. Keep in mind that it will be you — not the mortgage broker — making the payments. If you feel the monthly mortgage payments will stretch your budget, do your own calculations and shop in the price range where you are most comfortable.
If you are shopping for your starter home, there are even more reasons to shop below your maximum price range. The monthly mortgage payment is not the only expense associated with home ownership, and many former renters are surprised at how expensive things like real estate taxes, maintenance and repairs can be. You also need to account for home owner insurance.
Budgeting for these unexpected costs may lower the amount of home you can afford, but it will also reduce your stress level and allow you to sleep easy in your new home. Not only you need to budget for the unexpected, but you still have to enjoy your lifestyle.
Financial experts recommend that home buyers spend no more than 28% of their gross income on their annual mortgage payments. If you earn $60,000, that means you should aim to keep the monthly mortgage payment to $1400 or less. Armed with that information, you can calculate how much house you can really afford rather than rely on the calculations of a banker who may or may not have your best interests at heart.
Whether you are buying your first home or purchasing a second or third, you can call Mona Koussa for the best advice. Mona is an experienced local San Ramon realtor with over $300 Million in sales. She will help you find the home that best fit your budget and lifestyle.