Submitted By: Chad and Robyn Link
It has been a week since the biggest single game sporting event in the world has occurred. For those of you who are not into sports or may have been on a mission trip to Timbuktu we are talking about the Super Bowl! Leading up to the Super Bowl an estimated $10 billion, yes we said billion, dollars was wagered on the events that might occur during the final game of the NFL season. Gamblers were able to wager on everything from how long it would take to sing the national anthem to whether the first score of the game would be the New York Giants racking up a safety on the New England Patriots. Fortunately, for one lucky bettor, for only the second time in Super Bowl history the latter occurred and he went home $50,000 richer. However, once the Super Bowl was over the final numbers showed it was Las Vegas, not the bettors who came out on top. The lesson that potential home owners can learn from the Super Bowl…hedge your bets!
One of the most important steps you can take when beginning the home buying process is to get pre-approved. The pre-approval process involves contacting a loan professional who will ask you questions about and request documentation regarding your income and your debts. A loan professional will then take that information and combine it with your credit score to determine what type of loan is best suited for you and how much you can afford. Once this process is complete the loan officer will provide you with a pre-approval letter, which documents the maximum you can spend on your home purchase. It is very important to note that this pre-approval is good for purchasing a home “up to” the amount they provided you with. This does not mean that you have to use every last penny of that pre-approval amount when purchasing your home!
Financial and government institutions have put into place limits regarding how much a potential home owner can borrow. This is done in an attempt to limit the number of home owners that will default on their loans. However, if the last couple of years have taught us any lessons it is that homebuyers must make educated decisions regarding how much they borrow. Therefore, we strongly advise homebuyers to not follow the herd and purchase the biggest home their bank will allow them to have. As we have seen following that herd can send you right off the cliff to your financial death. While owning your own home is the American dream being house poor can make it feel more like a nightmare!
What is our advice to those who are currently in the market looking for a home or who will be soon? Whatever you do make sure you hedge your housing bet. Any loan officer will provide you with a number for how much the bank is willing to loan you. However, it takes a really good loan officer to talk to you about how much you are actually comfortable with spending. To make sure you are comfortable make sure you ask your loan officer to provide you with a couple of good faith estimates. Each good faith estimate should cover a different amount up to the maximum you are approved for. That way you can compare how much you will be paying each month based upon different purchase prices. Factors such as interest rates may vary between the time you get your pre-approval letter and when you actually purchase your home. However, these good faith estimates will give you a very good idea of exactly how much your monthly house payment will be.
Over the last couple of years the housing market has been an unforgiving teacher. The lessons it has taught have been far reaching and life changing. However, by examining the past and our past mistakes we are better prepared for the future. Becoming a homeowner remains one of the most potentially rewarding experiences that one can have. Having a home to call your own, to raise a family in and to build a future is priceless. Remember, over the long term home prices have always went up. Just make sure that when you take that jump you make an educated decision not a reckless gamble!
