Getting pre-approved is generally one of the first steps that you will take when starting your home buying journey, however, you may be surprised by what you end up getting approved for. While at first, simply getting the approval may be enough to jump for joy, once you take a few deep breaths and look at the actual number on your approval you may be pleasantly surprised by the amount that you can “afford.”
You should stop there. Unfortunately, nearly all consumers are NOT able to afford a home that is at the top of their pre-approval amount. While it may be tempting to start house hunting immediately, and automatically set your budget in line with your pre-approval, this is generally one of the easiest ways to cause yourself financial hardship, or ultimately put your house hunting journey on hold until you re-evaluate and set a realistic budget.
When it comes to setting budgets, while the pre-approval amounts may be tempting, you should always make sure to take the time to nosedive into your personal finances to see what it is you can personally afford, regardless of what your pre-approval amount may be. Your personal budgets could include multiple different things such as utility bills, car payments, credit card bills, groceries, phone bills, gas, car insurance, gym memberships, the list could go on and on. There is no bill too small when trying to budget, so even if it’s a $10 streaming service, add it to the list of monthly debts to see what funds you have left after you’ve covered the monthly debts you’ve already committed to paying.
For example, if you’ve taken your net income, deducted your monthly bills (excluding potential mortgages) and you only have $1,500 left over, purchasing a home that is accompanied by a $1,450 monthly mortgage, would not be a smart move when it comes to budgeting. It may be tempting to purchase a dream home that comes fully equipped with all the bells and whistles, however, make sure to set realistic expectations that allow you to find a home you love within a price range that you can afford.
It is important to remember that “buying a home should be exiting and free from the stress of making the wrong decision” – Buyers Agent Eastern Suburbs. By setting your own budget and not going off what your pre-approval letter states you can afford, you will help eliminate a huge amount of financial stress throughout both the buying process as well as your newfound homeownership.