Scouting for your dream home can be an exciting process, but it can also be a disheartening one if you have your priorities mixed up. This is true when deciding whether or not to get a home loan first.
There’s a general notion that home shopping should come before applying for a loan. But is it really more efficient?
Save your breath:
Sure, you might think that knowing the cost of a home first would serve you well because you can get a ballpark range as to how much financing you’d need to get. But buyers are usually disappointed after going down this route. Banks are not magical wallets you can take money from any time you want to. There’s a limit that banks set, depending on their evaluation of your application. And there’s a computation they have to base the loan amount off of. Sometimes that means they can only approve half of the price of your desired home. This can be disappointing for some, especially if you’ve already gone through an exhaustive search for properties.
Pre-approved loans also save you more time. Instead of waiting to get your loan approved to purchase the home, you can get bargaining power by having the money at hand already.
Let’s be realistic:
There is a financial advantage in applying for a loan first. Knowing how much you can spend gives you a more realistic perspective. You can then budget your finances. This removes any oversized fantasies and gives you the ability to adjust your home shopping flexibility, leading you to revisit your checklist to see which features of the home you really need.
This also helps you plan out your future expenses after the purchase of the home, like mortgage, interest rates, out-of-pocket home repairs you’d be willing to pay for as well. It gives you an overall sense of where you are and how much you’d be willing to do financially.
Should you decide to get a home loan pre-approved, you’re also opening yourself up for better opportunities you may not have been aware of. These loan officers have had several interactions with people under the same situation as you. They can offer you practical tips and advice on several topics from their own experience. It also allows you to study the loan terms better instead of rushing through it once you’ve already found your home.
Whether you’re a first-time home buyer or not, it’s helpful to see what options you have by doing your research and knowing where you stand. Because sometimes, knowing your limitation doesn’t mean there is a restriction. Depending on how you look at it, there can even be greater freedom in your limits.
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