Your mortgage person is one of the most important people in the real estate transaction. They will ask you to provide them with a lot of paperwork and financial information. You’ll want to have a good relationship with them and make sure they are knowledgeable and approachable when you have questions because you’ll probably have a lot.
If you ask some of these questions up front you’ll be able to do a lot of estimating on your own without calling your mortgage rep every time you need to estimate a number. Gathering this information with these 4 questions will save you and your mortgage rep a lot of time. Then you can confirm it with your mortgage rep when you find the house you love enough to put an offer on.
How much are they estimating for taxes?
Because you haven’t found a specific house yet the pre-approval is more of an estimate. One of the items they have to estimate is the taxes. They will use a number they believe to be average for the town or area you are looking in.
How can you use this information? Let’s say they estimate your taxes at $7,000. If you find a house with taxes of $5,000. That means that your monthly payment will be less than they estimated because you are paying $2,000 less per year ($167 per month) in taxes. It could also go the other way. If you find a house that you love that has $9,000 in taxes the extra $167 per month could prevent you from buying it. You’d want to discuss that with your mortgage person before putting an offer and spending time and money on the property.
How much does each $10,000 cost me to borrow each month?
I always tell people to look at the monthly payment as opposed to the final purchase price. Lots of people get hung up on money that only affects their monthly payment in a minimal way. I realize it sounds counterintuitive because $10,000 is a lot of money so is $1,000. When you look at it in terms of how much you are already spending these amounts are usually only a small percentage of the total. $1,000 is only 1% of a $100,000 house. $1,000 is .25% of a $400,000 house.
How can you use this information? Some people will find a house they love and come very close to negotiating a deal with the seller but let it go because they are unwilling to come up $1,000 in their offer. They haven’t looked at the fact that they are letting go of a house that they love for what could be about $3-$5 per month. Other people find a house that they love and don’t want to buy it because its $10,000 over what they wanted to spend and they don’t think about the fact that it might only cost them $30 -$50 more per month to get the house they really love.
What is the maximum I can be pre-approved for?
Believe it or not many people get pre-approvals and never ask what the maximum is that they can afford. Many times people make the decision about how much they are going to spend on a house before they talk to a mortgage person and before they have a realistic idea of what houses cost with the features they want in a specific area. You don’t have to spend the maximum amount that they say you can afford.
How can you use this information? It helps to know that if you find something you like and its a little above your price range that you could seriously consider purchasing it. It also helps to know if the home you are looking at is above or below your budget. You don’t want to go see a house you can’t afford, fall in love with it and then not be able to put an offer on it.
All numbers in this article are estimates based on interest rates at the time of writing. They may not be the same for you. You should ask your mortgage rep all the above questions and use numbers provided by them for your own calculations.