Okay, you’ve decided to buy a home and are trying to figure out what you can afford. Before you go home buying, you need to carefully consider what you can afford as far as a mortgage payment.
The first step you should take in determining what you can afford is to talk to a mortgage lender. In fact, the best step you can take is to go through the loan process to the extent required to get a pre-qualification letter. A pre-qualification letter tells you and a seller how big of a home loan the lender will give you.
So, once you have the loan in hand, that must be the amount you can afford ? The answer is maybe or maybe not. The prequalification letter is based on a number of factors such as your earnings and credit. It is not based on a picture of your life, which can lead to problems.
There is nothing worse than buying a home and straining to make the monthly mortgage payments. This situation occurs when a homebuyer relies solely on the pre-qualification letter or their own wishful thinking. You may have purchased your dream home, but don’t let the payments be a nightmare.
In determining how much you can afford to expend on a home purchase, you must consider your overall financial situation. Although you may be in a decent financial situation at the moment, do you have future expenses that will put pressure on your finances ? Such situations might include:
1. Planning to have kids in the next year or so ?
2. Are your current children going to university soon ?
3. If you own a business, is the financial outlook stable ?
4. If you work for a company, are you reasonably sure the company is headed in the right direction ?
5. Do you have any concerns regarding the dreaded downsizing ?
6. If you are the sole bread winner, what would happen if you were unable to work for a few months because of health issues ?
These general questions are intended to wake you up to the possibility of over extending yourself on a mortgage. Every situation is different, so make sure you take a careful look at your life to make sure you are committing to a loan you can afford now and in the future.