If you plan on buying a home you can’t escape having to get a mortgage pre-approval letter but be careful when you do…
It doesn’t matter whether you are buying a home in San Diego, Connecticut or NYC, unless you have all cash for your purchase you probably won’t get to speak to a real estate agent for more than a couple of minutes, and won’t likely be able to even see any homes without a mortgage pre-qualification letter in hand. Sellers and their agents simply don’t want to waste their time unless you are a sure thing. Unfortunately these ‘approval’ letters are full problems for buyers.
First off just because you were approved for $X for a mortgage loan doesn’t mean you need to borrow that much. Remember you are probably going to have those payments for 15 o 30 years and there is going to be a lot of other expenses in the meantime. Buying a home is still the best move and normally cheaper than renting but it is a lot more pleasant when your payments aren’t a burden. Be sensible about what you borrow. Your peace of mind and happiness is worth a lot more than impressing friends with a giant mortgage.
Keep in mind that your true or total housing payment is going to be more than just your new principal and interest payment. There will also be taxes and insurance and potentially homeowners association dues in addition to utilities. Make sure you are aware of all the costs before deciding to take on the mortgage.
Finally realize that a mortgage pre-approval letter is potentially the single most unreliable, worthless piece of paper that was ever so important. Many mortgage brokers and lenders will shoot out one of these letters based on a preliminary 5 minute phone call or even a short form online application. This means that they rarely have the whole story about your finances and circumstances, leaving a number of variables which can cause your home loan application to be denied later. Borrowers will be wisest to provide as much detail and documentation to lenders upfront in order to get a solid approval which will hold up once the loan goes to underwriting.
