One of the first questions you may have when applying for home mortgages is how much home can you afford. Many home buyers will attempt to purchase a home as close to the maximum amount their lender says they may qualify for, but there may be some downsides associated with this. You can easily be dazzled by gorgeous interiors of more expensive homes, but this may not be in your financial best interest. In fact, here are three of the top reasons why you may want to consider a lower loan amount than you can afford.
More Affordable Monthly Mortgage Payment
Your loan amount is one of the top direct contributors to your monthly mortgage payment. As your loan amount decreases, your monthly mortgage payment will also decrease. When you choose a lower loan amount and monthly payment, you are also choosing to have less monthly debt for the entire life of your loan and to essentially live beneath your means. It is impossible to determine what the future may hold, such as if you will be forced into a lower paying job or if your debts will skyrocket for unforeseeable circumstances. By choosing a lower mortgage payment and by opting to live beneath your means, you are essentially leaving yourself some financial wiggle room for such costly and unforeseeable circumstances.
Easy Loan Underwriting Process
During the underwriting process, your lender will review your total debt liabilities. These debt liabilities should be within reason to your income. The higher your monthly debts are, the more difficult it is to underwrite your loan. Your lender’s maximum loan amount that you qualified for is based off of the maximum monthly loan payment you would qualify for in underwriting. By maxing this out, you leave no extra room for additional debts or other issues that may arise during the underwriting process.
Money for a Rainy Day
If you choose to purchase less home than you can afford, your down payment will also decline. This means that you will have extra cash in the bank at closing to use as a rainy day fund. This may also be used to buy furniture for your new house an to complete other tasks. This, along with a lower loan payment, can help to position you for greater overall financial health.
While you could feasibly apply for the maximum loan amount you qualify for and you may be approved for that loan amount, you can see that this may not be the best choice for your financial well-being. Consider looking for houses that are priced below your maximum threshold to enjoy these benefits. You may find it useful to consult with WFCU Credit Union for additional information.