It seems appropriate to kick this blog off with a tip to Busta Rhymes and his pulse-pounding hit “Gimme Some More”. Between this song and his meaty supporting role in “Finding Forrester” (who hasn’t pined to see Busta and Sean Connery in the same movie), Busta was on top of the world. But just as quickly as he rose he soon fell, flying too close to the sun with his blingy wings.
Now for the matter at hand. As we all know mortgage rates are at historically low levels, and this has been one of the principal factors that have driven up prices and created such intense competition in the purchasing process. There are MORE buyers than ever, and FEWER houses for sale than ever. The math becomes simple in this scenario, but this is not the point I want to cover in this blog. Instead, I want to offer some practical advice.
Sometimes buyers will come up with their purchasing budget before they ever visit a bank or see a broker. They will do this crunching monthly payment numbers (there are scores of websites now where you can do this) and figuring out what is comfortable. For this example let’s just say they determine that $800,000 is their “comfort” number. They will then go to their bank and apply for a mortgage that will facilitate a purchase up to $800,000, and not a penny more. Sounds rational and safe, right? But they are actually making a mistake that could cost them their dream home.
I always tell my buyers to apply for as much money as the bank will give them. Go for that “max” approval. In most cases, the banks will give people higher mortgage amounts than they ever imagined, and that’s ok. It doesn’t mean a buyer has to borrow more than they want, or spend more than they want. But they should always know their “push” number, and ensure they can swing the payments if push comes to shove (which is, unfortunately, common in our current market).
Let’s go back to the buyers that applied for $800,000 and not a penny more. They start shopping and find the perfect house. All is good until they realise on Sunday night that they won’t be able to buy the house unless they can offer $850,000. Offers are Monday afternoon, and anything conditional on financing won’t be considered. They don’t have enough time to go back to their back to arrange to finance for $850,000, and they miss out on the house. The kicker here is that they could have afforded the house, and if only they initially applied for a higher mortgage amount they would have been armed with that confidence.
Just like the morning after a suicide chicken wing binge, this is a terrible feeling and one I hope my buyers never encounter.