Contrary to popular sentiment, there is no standard formula for accurately calculating the specific dollar amount you should borrow when purchasing a new home. Many websites offer special borrower calculators that claim to factor in important variables. Other websites offer general rules of thumb, suggesting that you should never borrow more than 2 1/2 to 3 times your gross annual income, or that 28%, 32% or even 40% is the maximum amount of debt you should ever take on.
Meeting with a reputable loan professional and getting yourself pre-approved (not pre-qualified) is a good way to know the exact amount of money you can and should borrow. By getting pre-approved, you not only increase the chance of finding the right house for your needs, you also become a “cash buyer”, likely increasing your bargaining power.
A lender will sometimes offer you a the maximum amount of money that you qualify for, whether you actually need the full amount or not. Because of this, it’s vital to sit down with a professional you can trust to figure out your complete financial picture.
If you or someone you know could benefit from this type of consultation, give me a call. I would love the opportunity to help.
Give me a call! I would love to help you navigate the home loan process!
Related articles: How are Pre-Qualifying and Pre-Approval Different?