I’m Prequalified for $350,000. What Should I Actually Be Looking At?
If you’ve been told you’re prequalified for $350,000, or X amount, you may think you have your answer.
You can start searching for $350,000 homes, right?
Well, not necessarily.
One of the first things I like to clarify with buyers is that the amount a lender says you may qualify for is not automatically the amount you should spend. There is also a difference between being prequalified and being preapproved, and that difference can matter when you’re ready to make an offer.
Then there is the question of what kind of financing you may qualify for. Depending on your circumstances, there may be programs that can help with your down payment or closing costs. Some properties in areas around Newcastle, Blanchard and Tuttle may also be eligible for USDA financing, which can offer 100% financing to qualified buyers.
There are opportunities out there, but there are also some important details to understand before you start shopping.
Prequalified and preapproved are not the same thing
Let’s start with the basics.
A prequalification is generally an early estimate of what you may be able to borrow. Depending on the lender, it may be based largely on information you provide about your income, debts, assets and credit.
A preapproval typically involves a more thorough review of your financial information by the lender.
The exact process can vary from one lender to another, so I always encourage buyers to ask the lender what their particular prequalification or preapproval actually represents.
Why does this matter?
Because when you find the right house, you want to know where you stand before you write an offer.
I don’t want a buyer to spend weeks looking at homes, fall in love with one, and then discover that their financing situation is not quite what they thought it was.
If you’re planning to buy in the next 30 to 60 days, talking with a lender early can save you a lot of frustration later.
If I’m prequalified for $350,000, should I look at $350,000 homes?
Not necessarily.
Your lender is looking at whether you meet the requirements for a particular loan. You also need to think about what payment actually works for your household.
For example, maybe you’re prequalified for $350,000 but decide that you would rather keep your monthly payment lower and shop closer to $300,000.
That’s not a failure to use your full buying power. That’s making a decision that fits your budget and your life.
Remember that your monthly housing expense can include more than principal and interest. Depending on the property and loan, you may also have property taxes, homeowners insurance, mortgage insurance, HOA dues and other expenses.
And then there is maintenance.
Something will eventually need to be repaired. That’s part of owning a home.
This is why I encourage buyers to look beyond the purchase price and think about the entire cost of owning the home.
Don’t assume you need 20% down
This is one of the biggest misconceptions I hear from buyers.
Some people believe they need 20% down before they can buy a home. That’s not necessarily true.
The amount you need to bring to the table depends on the loan program, your financial situation, the property and other factors.
There are conventional loans, FHA loans, VA loans, USDA loans and other financing options, each with its own requirements.
This is where your lender becomes an important part of the process.
My job is to help you understand the property, the market and the transaction. Your lender’s job is to determine which financing options you qualify for and explain the costs and requirements associated with them.
Those roles work together, but they aren’t the same.
What about first time home buyer assistance?
If you’re a first time buyer, this is absolutely something worth asking your lender about.
The Oklahoma Housing Finance Agency, or OHFA, offers homebuyer programs that can provide down payment and closing cost assistance to qualifying buyers. Current OHFA programs include options for first time buyers as well as some programs available to repeat buyers. Eligibility can depend on factors such as income, household size, location, credit and purchase price.
OHFA currently advertises assistance of up to 3.5% of the total loan amount for eligible buyers using its programs.
That can make a meaningful difference when you’re trying to come up with the money needed to purchase a home.
But there is an important detail here.
Down payment assistance is not necessarily free money.
For example, OHFA explains that its assistance is generally provided as a subordinate loan secured by a lien on the property. Repayment can be triggered by events such as paying off or refinancing the first mortgage, selling or transferring the property, or no longer using the home as your primary residence.
There are also specific program requirements, including credit, income and purchase price limits.
So if someone tells you, “There’s a first time buyer grant that will pay your down payment,” don’t stop there.
Ask questions.
What program is it?
Is it a fixed loan or an arm loan?
Is it a grant or a loan?
Does it have to be repaid?
Is there a lien?
What are the income limits?
What happens if you sell or refinance?
Your lender can walk you through the details and determine whether you actually qualify.
Could USDA financing be an option?
This is another program that can be worth exploring, particularly if you’re looking outside the more densely developed parts of the Oklahoma City metro.
The USDA Single Family Housing Guaranteed Loan Program can provide 100% financing for eligible buyers purchasing a primary residence in an eligible rural area. That means a qualified buyer may be able to purchase with no down payment.
And this is where Southwest Metro Oklahoma buyers need to pay attention.
There are areas around communities such as Newcastle, Blanchard and Tuttle where you may find properties that could potentially qualify for USDA financing because they are developing suburbs.
But you cannot assume a property qualifies simply because it has a Newcastle, Blanchard or Tuttle address.
USDA property eligibility is determined by the specific location, and USDA provides an address search tool for checking eligibility. Final eligibility is determined through the USDA and the approved lender.
There are also income requirements. USDA says applicants for the Guaranteed Loan program generally cannot exceed 115% of the area’s median household income, among other requirements.
So if you’re looking at a home with a little more land outside the more urban areas, it is worth asking your lender:
“Could this property qualify for USDA financing?”
That’s a question I can help you identify, but your lender is the person who needs to determine whether you and the property actually qualify.
So what should you actually be looking at?
If you’re prequalified for $350,000, I wouldn’t tell you to simply open your favorite real estate app and set the maximum price to $350,000.
I’d start with a conversation.
What monthly payment are you comfortable with?
How much money do you want to have available after closing?
Where do you want to live?
What type of home are you looking for?
Are you a first time buyer?
Could you potentially qualify for down payment assistance?
Would USDA financing make sense for the type of property and area you’re considering?
Those answers may change the homes you should be looking at.
For example, a buyer who is prequalified for $350,000 and wants a home in a newer subdivision may have a very different search than a buyer with the same prequalification who wants a little more land and is open to areas around Newcastle, Blanchard or Tuttle.
The purchase price is only one piece of the puzzle.
One more thing before you start shopping
Please don’t be afraid to ask questions.
You don’t need to know the difference between every loan program before you meet with a lender. That’s what the professionals are there for.
I’m a Realtor, not a mortgage lender, so I don’t determine whether you qualify for a particular loan or tell you which financing program you should choose.
What I can do is help you understand how the financing conversation affects your home search.
If you’re looking at a $350,000 home, for example, we can talk about what you’re seeing in that price range, which communities fit your priorities, whether a particular property has characteristics that may be worth asking your lender about, and what you should consider before writing an offer.
Your lender can then determine the financing side.
That’s how I think it should work.
You shouldn’t have to figure everything out by yourself.
Thinking about buying in Southwest OKC and the surrounding communities?
If you’re planning to buy within the next 30 to 60 days and you’ve recently been prequalified, this is a great time to slow down and make sure your home search matches your actual financial situation.
Whether you’re considering Southwest Oklahoma City, Moore, Norman, Blanchard, Mustang or another Central Oklahoma community, I can help you narrow down the areas and homes that make sense for what you’re trying to accomplish.
And if you’re a first time buyer, don’t assume that buying a home is out of reach simply because you don’t have a large down payment saved.
There may be financing and assistance options worth exploring.
Start with your lender. Then let’s talk about what your buying power actually looks like in the local market.