Getting pre-approved for financing or mortgage from financial institutes or other entities is the utmost important step in today’s market. Even if you have lump sum cash sitting around to buy a house, it’s still highly advisable to get pre-approval for house loans. Seller may look upon this as a financials backup guarantee and build confidence that the deal won’t fall apart if they accept your offer in the worst case. Most importantly, it will help you understand the exact dollar amount you can afford by factoring in your GDS, TDS, and other financial liability and assists.
But of course, there is a catch in here, as it again depends on the situation. Let’s say your bank pre-approves you for $900,000, and you put in offer this amount. But now, your bank as a lender will have an appraiser sent over to determine if the house is valued at $900,000 or not. If the appraiser reports that $900,000 is an absolute value of the home, then you are gold and consider it all done. But yes, a huge ‘BUT’ if they appraise it at $750,000, which is lesser than the pre-approved dollar amount, then your lender will provide the actual loan for just $750,000. Now you become short of $150,000 and might have to look for other resorts to arrange this. The opposite of this situation is highly unlikely practically.
In today’s low inventory market, everyone who can afford the house is racing against other buyers to win the bidding war. Everyone is compelled to push their finances over the edge to walk away as the winner in this market. With access to private lenders, it’s not challenging to arrange lump-sum amounts in matter time to use as funds for a high deposit, cash purchase, etc. But they don’t come cheap as interest rates are higher. Also, remember that once you get the house, you must pay it back eventually, even if your lender gives you some offers.
We should not forget that owning a property doesn’t mean just paying monthly mortgages. There are ongoing added costs that will come with it, such as paying monthly maintenance, property taxes, unwanted repair costs, etc. This can an added havoc. Of course, there are ways to lighten some of this burden via using techniques as house hack where you rent out the basement or any secondary dwelling unit. But again, this depends on if your local municipality by-laws allow for this.
Therefore, you should try to limit yourself to your budget and avoid getting overstretched. This can help you prepare for the worst scenarios if the time comes.
