Real estate is a popular topic these days. For home buyers getting their foot in the door in a Seller’s market with below average inventory, one of the important conversations is finanacing.
The market is flooded with buyers who have mortgage financing who are competing against cash buyers, who play the negotiation game with different rules.
As purchase prices and interest rates continue to rise, home buyers may benefit in the long run, from considering options when it comes to buying power and whether purchasing to the maximum qualification amount allowed by the lender, makes sense.
It is important to consider over arching financial goals, income (are you a single wage earner or multi-wage earnimg household), lifestyle, and home buying goals, before speaking to a lender about financing.
Your lender may qualify you for the maximum amount allowed based on mortgage guidelines and your financial documents, but that does not mean you must purchase a property at that amount. For some maxing out on their home purchase makes sense, and for others purchasing a property well below their means is more appealing.
Here are some of the advantages of buying a home below maximum qualification amount:
Make the Monthly Mortgage Payments Comfortably:
Lenders use gross income to determine qualification. The debt to income ratio is calculated using monthly consumer debt - as reported on your credit report, and the gross monthly income. On the other hand, the Net income is what is actually taken home after taxes and is the “real” income figure more likely to be used when borrowers budget and make financial decisions.
Buyers who choose to not only purchase below their maximum qualification amount but also focusing on a monthly payment that fits within a real life budget may have more security and confidence in knowing that they can make their payment every month.
Save and Invest More:
Choosing a home that does not max out spending power also presents greater savings and investment opportunities. Home buyers who consider a lower purchase price even when they can qualify for and can afford more, can buffer savings accounts for emergencies (many financial experts recommend a 3-6 month reserve of total monthly expenses) and have the flexibilty to grow money with additional investments.
Reduce Risk in Unstable Times:
We do not like to think about life’s disasters and emergencies on a regular basis, but being ill- prepared for them financially only multiplies the impact. Accidents, car problems, property repairs, family needs, these changes can often be solved with quick financial infusions which may be more readily available to individuals and families who have elected to make saving and investing a priority.
Dining out and leisure travel are lifestyle choices for many households.
Shopping for a property that is within or below budget could help ensure that there are opportunities to vacation yearly and eat out from time to time, without the stress that comes with overspending.
Send Extra Payments
Most people know that equity is one of the most valuable benefits of home ownership and real estate investment, but what they may not know is that deciding on a property that results in a lower monthly mortgage payment may provide families the flexibility to send extra payments when it’s convenient. Sending extra payments to the principle amount owed on a mortgage is one way to increase home equity.
As you plan your home purchase and consider the options available in terms of home loans and purchase amounts it’s important to factor in your overall financial goals.
Purchasing a home, ideally, will enhance your lifestyle and expand wealth building opportunities for you and your family.
If you’d like to learn more about preparing for home ownership and your mortgage options please complete the contact form.