Why the Mortgage Amount Your Lender Approves Isn’t Always the Amount You Should Borrow

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One of the biggest mistakes homebuyers make when buying a home is taking out an overpriced mortgage. In fact, a big reason why the housing market suffered such a severe crash many years ago was that too many homeowners were in financial trouble with mortgages they couldn’t afford.

Since then, the mortgage industry has become tougher on providing loans. And these days, lenders impose pretty stringent requirements.

But you may still run into situations mortgage lender Authorize to borrow an amount that you really cannot afford. Therefore, it is much more advantageous than relying on the mortgage lender’s decision on what to borrow. calculate your numbers And make sure the loan amount makes sense.

Limited pool of financial data

There is certain financial data that mortgage lenders have access to during the process of approving a mortgage application. Lenders need to know how much you’ve earned and what your existing debt is. Based on these factors and your credit score, lenders can determine if you are approved for a mortgage and what your loan amount looks like.

But your income and existing debt alone don’t tell you all about your financial situation. That’s why it’s important to consider the big picture of yourself when deciding how much to borrow on your mortgage.

MORE: Best FHA Mortgage Lender Picks

Let’s say you are currently spending $4,000 a month on childcare. It’s not debt, so your lender may not know or ask for it.Therefore, the lender should ensure that you is not It’s on the hook of $48,000 a year in day care costs.

Put another way, a lender might determine that the monthly payments for a $400,000 mortgage can be adjusted based on existing debt and income. But if, based on your total spending, you feel you can only cover your $300,000 loan payments, then you should limit that to your mortgage amount.

don’t go over your head

As a general rule, monthly housing costs include mortgage payments, property taxes, homeowners insurance, should not exceed 30% of your take-home pay. However, that rule can be adjusted depending on the situation.

If you have another very large expense, such as childcare, you may not feel comfortable spending 20% ​​or 15% of your income on housing. And it’s your choice.

Ultimately, you know your financial situation better than your mortgage lender. So while you may be tempted to borrow as long as your lender allows, it’s a good idea to do the math yourself and come up with a number that makes the most sense financially.

Taking on a mortgage that is too expensive can lead to a world of stress, not to mention the risk of falling behind on that loan and other bills. It is better to make mistakes on the side.

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