One of the first steps you are going to take in your home buying journey is to get pre-qualified and then pre-approved for a mortgage. This process tells you how much you qualify to borrow, which in turn can help you set a budget for your home search.
But here’s the thing—what you qualify for and what you can afford may not always be identical.
Why You Got Pre-Approved for More
The job of a mortgage company is to help you qualify to borrow as much as possible while keeping your interest rate as low as they can. Their goal is to connect you with a mortgage is as flexible and affordable as possible, maximizing your freedom.
What isn’t their job is to plan out your personal finances. They can certainly offer you their thoughts and feedback if you request it—but it is not their job to make sure that you can afford your home loan. That is your job.
Why You Should Consider Taking Out a Smaller Mortgage
Let’s imagine for a moment that you make around $50,000 a year before taxes. You apply for mortgage pre-approval, and get approved to take out a mortgage that will come out to around $2,000 a month.
A number like this could baffle you. Your current rent may be closer to $700 a month, and you may only be managing to save a small amount each year.
You could find yourself scratching your head, trying to figure out how or if you could possibly afford a $2,000 a month mortgage payment. But no matter how much you try to move the numbers around, the reality is that after taxes, this would eat up most of your take-home pay. There is simply no way to afford that while still affording your other expenses.
In that scenario, if you took out the largest possible mortgage you were approved for, you would not be able to keep up with your payments, and you would end up in foreclosure.
That is why you should take out a smaller mortgage than you were approved for. How much smaller? That depends on your individual budget.
Ideally, by the time you have paid all your housing-related bills and other monthly expenses, you should have enough left over that you can put some money into savings and investments.
So, the right amount to borrow when buying a home is however much you can afford to pay back and still keep working toward growing your wealth.
Apply for a Competitive Home Loan in Florida
Premier Lending Corp will work hard to get you approved to borrow the largest possible amount with the lowest possible interest rate. But we can also help you go over your budget and figure out how much home is affordable given your income and expenses. That way, you will be able to keep making progress toward your financial goals after moving into your new home. To begin, please give us a call today at 954-840-8811 to schedule your mortgage consultation.