How Do Pre-Approvals Determine Your Purchasing Power?

Sacramento Real Estate Video Blog with Heidi Phong

The pre-approval process is crucial in determining your buying power. Here’s how it works.

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Why is a pre-approval so important? What all goes into the pre-approval process?
First off, you need to get pre-approved so you know what kind of home you are able to buy. Your pre-approval number is generally referred to as your purchasing power.
How does your lender calculate this amount? By going through your credit, looking at your income, and determining your debt-to-income ratio, your lender will help you determine what mortgage payment you’re comfortable making.

The interest rate you qualify for is a big factor in determining your purchasing power. For example, if you qualified for an interest rate of 3.25%, your mortgage payment for a $250,000 home would be roughly $1,088 per month. If you don’t qualify for that 3.25% rate and instead qualify for a rate as high as 4.75%, your mortgage payment for that same $250,000 home would increase to $1,300 per month.

The interest rate you qualify for plays a big role in your purchasing power.

See why it’s so important to know what interest rate you’re able to qualify for and lock in? That extra $212 could mean a lot. By saying yes to that increased payment, you’re saying no to eating out more often with your family. A higher mortgage rate means more sacrifices.
Many times, I have to explain this process to my clients in more detail, so if you want to dive further into this subject matter, don’t hesitate to ask your own loan officer. They’ll be able to give you the answers you need before buying your first home.
If you have any questions or are looking to buy or sell a home, feel free to reach out to us. We’d be happy to help!