Pre-approvals are the best tool to understand your buying power. However in most cases, your pre-approval limit will not reflect how much of a mortgage you can actually afford when you consider your overall budget. If you max out your home buying budget you could end up house poor - meaning you have little cash left over to cover other day to day expenses, or even other bills. And what's the point of living in Hawaii if you don't have a little cash to go out and enjoy paradise! Luckily, we won't leave you house poor. Once you get pre-approved, we make it a point to go over what your ideal budget is, so that you can feel comfortable in your monthly payment.
When you get a pre-approval from us, we will give you two numbers. The first is your pre-approval for a single family home with no maintenance fee. The second is a pre-approval for a home with a maintenance fee, as those are commonly in people's price ranges on Oahu. Once you get your pre-approval, we make sure to sit down and go over the total cost of your loan and other monthly expenses you might have to pay - like HOA fees. Of course you won't know exactly what your other expenses will be until you are in contract, but we have enough experience to give conservative estimates based on your price range and in what areas you are looking to buy.
Falling behind on your mortgage is costly
Maxing out your mortgage budget has the potential to do big harm to your financial health in the long run. If you have a negative change in your income, like if you lose your job or you get out of the military and lose that BAH payment, it can be easy to fall behind on your mortgage payments. Especially if your payment was already at the top of your budget. With each late payment, you rack up some hefty late fees.
If you fall too far behind on your mortgage payments, the lender can foreclose on your home. In addition to being evicted, the foreclosure will stay on your credit report for seven years. So even when you recover and have your finances back on track, that foreclosure will still hang around.
The bottom line: don't stretch yourself thin
It can be tempting to max out your home buying budget - more money means more house right? But resist the temptation! You will not only enjoy your home more, but you will enjoy island life to its fullest when you are not burdened by a too-costly monthly payment. Work with a lender and realtor who will help you find your ideal budget and help you stay within that price point.