You get pre-approved for $700,000.
Great news.
But does that mean you should start shopping for $700,000 homes?
Maybe.
A $700,000 pre-approval tells you what you may qualify to finance. It doesn't tell you whether the payment that comes with a $700,000 home fits the way you actually want to live.
That's a different calculation.
Before you start touring homes, there's another number I want you to know:
What total monthly housing payment actually feels comfortable to you?
Once you know that number, we can work backward into the home price and financing structure that make sense.
What Does a $700K Pre-Approval Actually Tell You?
A mortgage pre-approval tells you how much a lender may be tentatively willing to lend based on the financial information reviewed.
It is not a recommendation to spend that amount, and it isn't a guarantee that the loan will ultimately be approved. The CFPB describes a pre-approval as tentative and based on certain assumptions.
Lenders look at things like income, assets, debts and credit when determining a pre-approval. But you are the one who knows what you are comfortable paying every month. The CFPB specifically makes that distinction in its home buying guidance.
That's why I want buyers to think of these as two different numbers:
What can I qualify for?
and
What do I actually want to spend?
Sometimes they're the same.
Sometimes they're not.
Start With the Payment, Not the Price
A $700,000 home sounds like one number.
But you don't live with the purchase price every month.
You live with the payment.
And principal and interest aren't necessarily the whole picture.
Your total monthly housing cost may also include property taxes, homeowners insurance, mortgage insurance when applicable, HOA dues and other property-specific costs. You'll also want room in your budget for things like utilities, maintenance and repairs.
That's why I'd rather start with:
“What total monthly housing payment feels comfortable?”
Then we can work backward.
What If You're Approved for More Than You Want to Spend?
Spend less.
There is nothing wrong with that.
If you're pre-approved for $700,000 but the payment on a $600,000 home fits your life better, you don't need to increase your personal budget simply because more financing may be available.
In fact, the CFPB specifically advises buyers who are pre-approved above the budget they already established that they can continue shopping within their original target.
And the opposite can happen too.
Maybe you run the numbers and discover that the payment at the top of your pre-approval does fit comfortably with your other priorities.
Great.
The point isn't to spend less.
The point is to know why you're comfortable spending what you're spending.
Four Numbers to Know Before You Start Shopping
1. Your comfortable monthly housing payment
Think about the full housing cost, not simply principal and interest.
2. Your available cash for closing
How much do you want to use for the down payment and closing costs?
3. The cash you want left afterward
Moving, repairs, furniture, emergencies and the rest of your financial goals don't disappear when you get the keys. CFPB guidance likewise recommends accounting for other savings goals, moving costs and an emergency cushion when determining available cash for closing.
4. Your target purchase price
Once the first three numbers are clear, we can evaluate the home-price range and financing structure that fit them.
Now your home search is being driven by your financial priorities, not simply the biggest number printed on a pre-approval letter.
The Better Question
A pre-approval is valuable. It helps establish your financing range and shows a seller that you're a serious buyer.
But borrowing power and buying comfort aren't the same thing.
So instead of stopping at:
“How much can I get approved for?”
Ask:
“What can I comfortably spend and still have room for the rest of my life?”
That's the number I want you shopping with.
Have you ever been surprised by how much—or how little—you were pre-approved for? Tell me in the comments.
If you're preparing to buy, we can start with the payment and cash-to-close range you're comfortable with and work backward into a home price and financing structure.
Schedule a Mortgage Strategy Call
Information is for educational purposes only and is not a commitment to lend or financial advice. Pre-approval amounts, loan terms, payments, interest rates, property taxes, insurance, mortgage insurance, HOA dues, closing costs and eligibility vary based on the borrower, property, loan program and lender. A pre-approval is not a guarantee of final loan approval. All loans are subject to credit approval, program guidelines, property eligibility and underwriting requirements.
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