Move to Step 3
I'm Pre-Approved, let's get in the car!!
Unlike this crazy crowd, we need to first consider a couple of questions before we jump into the car and take off looking at houses. The first question is: Do I want to buy the maximum priced house my lender says I qualify to buy? More and more of my clients are answering this question "NO", which I think makes sense.
Although it is to our financial advantage for you to buy the most expensive home you can afford, I do not feel it is ethical to push you into that mode. Instead, we prefer to help you find a home that you can enjoy living in without being "house poor" or on the edge of making your monthly payments. Generally, you will likely enjoy your new home more, if you buy a home that allows you to have a life outside of that purchase.
One of the major personal financial gurus, Dave Ramsey, recommends you establish an upper limit on what you buy that is established by the maximum you can afford to buy in a 15 year fixed mortgage. His theory is the lower rate and quicker time to pay off the home will enable you to be "debt free" (his catch phrase) early as possible. Past that, he would say you can maximize your approval limit under his 15 year plan.
While Dave Ramsey's idea is not a bad alternative, it is not the one I recommend. Instead, we recommend you consider all the relevant facts and circumstances of your personal situation and decide what works best for you. Ramsey's "one size fits all" plan does not evaluate things at this more detailed and appropriate level. Some things you should consider are: overall financial strength, employment risk, status on having children, transportation costs, overall risk comfort, amount of down payment, chances of promotion, increasing / decreasing of other expenses and many other factors. In addition to these factors, you should also develop and consider your personal or life strategy.
After considering these factors and others relevant to you, we can then search for homes that fit your personal needs and move to Step 3.