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Know Your Purchasing Power
How Getting a Grasp on the Numbers Will Help You Land Your Dream Home
It is said that knowledge is power – and that mantra rings especially true in the real estate world.
Unfortunately, far too many prospective homebuyers rely on faulty data, assumptions, or arbitrary numbers, especially so when it comes to a home’s purchase price. Buyers, for example, set their maximum budget at, say, $400,000 with no credible rationale for why that figure might be too high or too low. It just “sounds right.” As a result, buyers waste time looking at homes beyond – or even below – their price range, reject promising properties, or fail to develop a budget plan that can lead to the home features they most desire.
There is, however, an easy solution: getting pre-qualified – or even pre-approved – for a mortgage by a reputable loan officer. Such a simple financial step arms homebuyers with relevant information to drive their home search.
First, what’s the difference between being pre-qualified and being pre-approved?
A first step in the mortgage process, getting pre-qualified is rather straightforward. Often quick and free, a lender assesses your overall financial picture, such as current debt, income, and assets before providing a reasonable mortgage qualification estimate.
Pre-approval, meanwhile, takes the pre-qualification process to the next level. It includes a more thorough investigation of your current financial state, including your credit rating. This helps lenders supply a more concrete loan amount and, in many cases, could even allow you to “lock in” a mortgage interest rate.
Whether you elect to get pre-qualified or pre-approved, the result is the same: greater clarity on what you can afford and the key numbers that drive decision-making. You can then act with much greater speed, efficiency, and intent during your home search.
Capturing Real Benefits
Combining your mortgage qualification with the money you have available for a down payment, you will have a more precise idea of the home you can afford. Dealing with real numbers, not assumptions or guesses, you can then set your search parameters accordingly and, critically, also begin to factor in other financial details, such as real estate taxes, homeowners insurance, or HOA fees to understand your full monthly payment.
For those interested in new construction, in particular, having a firm grasp on the numbers will help you better determine any special features you might want add to the home. For example, say you want a bonus room that’s a seemingly hefty $10,000 option. At a 5 percent interest rate on a 30-year mortgage, you will discover that adding that much-desired option will run you $41 a month, or $1.41 a day.
And finally, since the lender already has some of your financial data in hand, the professionals can then hit the mortgage approval process immediately after you find the home you want. That gets you that much closer to your dream home.
The bottom line: when you get pre-qualified or pre-approved for a mortgage, you gain more information and strength to purchase the house you want in the neighborhood you want.
And that’s why knowledge is power.