When you are planning to buy a house, using a mortgage calculator and getting preapproved by a lender can help you gauge what you can afford as a homebuyer. But if you plan to use a preapproval figure as your homebuying budget – that’s a different discussion!
Always Remember: Preapproval isn’t a budget
There may be times your lender may preapprove you for a loan of $700,000 but that doesn’t automatically mean you should use that much – at least not without proper calculation. Generally speaking, lenders don’t always look out for your best interest. A larger amount of loan usually means more possibility of profits in the long run.
When lenders approve your loan amount, they don’t usually take into account your other expenses. A monthly mortgage of $3,500 can easily be paid by someone with a regular income but they do not factor in your utilities, HOA dues, and all the other costs that come with owning a home.
A mortgage payment isn’t only the cost you have as a homeowner. Once you close a deal, you have your down payment, closing costs and not to mention, moving expenses. Over time, you will also have property taxes, homeowners insurance, maintenance or repairs and other expenses.
Spending the maximum loan amount is very tempting – especially if it will allow you to buy your dream home but always remember that falling behind on your mortgage is much more costly and may result in foreclosure and eviction. Carefully planning your expenses as a homeowner and making sure you choose a home that you can comfortably afford is best for the long haul.