Little in life is more exciting than taking the steps needed to secure a home loan, and then hearing the words “You’re Approved.” What follows should be even more exciting—after all, home ownership, whether it’s your first purchase or not, signifies a brand-new chapter in your life. But the question is, as you search, should you shop above your approved loan amount for a home?
One of the best ways to make the shopping process as simple and enjoyable as possible, while resting assured you’re making a sound financial decision, is to shop in the right price range. It sounds basic, but you’d be surprised how many prospective buyers misunderstand what is really and truly “affordable.” Here are some pointers on how to proceed with confidence once you have your mortgage pre-approval in hand.
Don’t look at a home if it’s over 10% more than the amount you’re approved for.
When answering the question of whether or not you should shop outside of your approved loan amount, it’s important to set a cap. Yes, you can shop outside of your price range, but no more than 10% more. Your wiggle room is what your agent can negotiate for you. Also, chat with your agent to find out what they think they will be able to negotiate on your behalf, in the current market, within your set price range.
Do target homes that have been sitting on the market for a little while.
It can be worth you time to shop outside of your price range if you find something that’s asking for a price reduction – like something that’s been sitting on the market for months. Perhaps you’ll find a fixer-upper in a fantastic neighborhood you’d otherwise be priced out of. Or maybe, your agent will be able to determine that a property has been priced incorrectly. Experienced real estate professionals are skilled when it comes to uncovering hidden value in these situations.
Do take “other” costs into account.
For first-time buyers, it’s easy to forget that buying a home also means paying closing costs, property taxes, HOA dues, and the like. There’s also the money you’ll spend on furniture and home goods. Preparation—and a thoughtful, thorough budget—will help facilitate the right decisions. If you haven’t considered the other costs, it’s a good idea to shop below your approved loan amount.
Don’t forget to consider the state of the market.
If there’s a shortage of homes available for sale, and available inventory is moving quickly, it’s a seller’s market—meaning there’s likely no point in shopping above your approved loan amount. If anything, you may be up against multiple other offers for the home you want.
The best piece of advice we can offer? Allow an experienced real estate agent to guide you through the exciting process of shopping for a home! Real estate agents understand not only how to navigate the market based on current conditions, but how to ensure you get the most for your money should you decide to shop above your approved loan amount for a home. Contact First Team Real Estate today if you’re in search of a trusted real estate agent in Southern California.