Let’s say you have completed all the previous steps. You have the down payment saved. You created a working budget that includes your anticipated mortgage along with taxes, insurance, and an emergency fund. Time to go buy a home, right? Not yet.
Most sellers will not entertain an offer until you have been pre-approved by a lender. Before you make any offers – and really before you start a serious home search – you need to know how much the bank is willing to give you.
Loan officers will review your financial record to determine how much house you and afford and their risk. Factors reviewed are:
- Income (W-2s)
- Assets
- Credit history
- Credit score
- Debt including Student loans
Credit Score
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Should I get a 30, 15, or 10 year mortgage
The safest route is a 30-year, fixed rate mortgage. You will make steady monthly payments and if your credit score is excellent, you will have a lower interest rate. An adjustable rate can be tricky only because it can fluctuate over time.
They most often offer 15-year and 30-year mortgages. These come with either fixed or adjustable interest rates.
If you are prepared to pay a certain monthly amount but the rates change, you may find yourself over budget. It is worth noting that many banks will offer a loan amount that exceeds your set budget.
You might plan to pay $200,000 for a home, but receive a loan offer of $300,000. Do not take on a loan that exceeds your budget.
In Closing
Just because you are eligible for a large loan does not mean you should take it. If you do this, you risk becoming house poor – spending your income on monthly mortgage payments and not building your savings or using money toward repairs, maintenance, and other necessities.
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