The Pre-Approval Puzzle

By: Horizon Bank Last Updated: May 16, 2012

mortgage“How much can I get pre-approved for?” is almost always a loaded question. The answer depends on a variety of factors, including your financial goals. If your goal is to pay off your home quickly, perhaps a 15-year loan is what you want. Making the same payments on a 30-year loan will allow you to borrow more money, and therefore buy more house.

The real question is not, “How much money can you approve me for?” You should be asking, “What payment am I comfortable with?” As a loan officer, I can frequently pre-approve you for a higher payment than you are comfortable with.

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Here’s an example. Three different borrowers who have exactly the same financial situation (if that were actually possible), may all have different amounts of money left over at the end of the month. This is due to several factors including lifestyle, priorities, family dynamics, hidden expenses, etc. One homeowner may travel more to visit family members who live in distant places. Another may pay for private school or college education for their children. Others give a significant amount to charity, or have ongoing medical bills due to health issues.

The bottom line is this: a lender can approve you for a certain payment, but you will be writing the check each month. Don’t let someone else convince you that you can make a payment that you know won’t work with your budget.

“How much should I get pre-approved for?” The answer to that is simple: no more than you are comfortable with.