Looking for a new home can be an exciting time, but it’s important not to get too carried away — at least until you find out what budget you’re working with. Being pre-approved is the first crucial step in the home buying process. To avoid disappointment, you should aim to be pre-approved before you start viewing homes.


But what happens after you’re pre-approved? Is the figure on your pre-approval letter the only thing you should consider? Although your pre-approval should give you a good idea of what you can afford, it shouldn’t be the only deciding factor in your budget.


Let’s first look at what pre-approval is.



What Is A Pre-Approval Letter?

A mortgage pre-approval letter is a document from your chosen lender, which states that you are able to complete the purchase of a home  — provided that it meets the lender’s guidelines. A mortgage pre-approval tells you how much you can afford to spend, and also how much your monthly payments will be.

To secure a mortgage pre-approval, you typically complete a mortgage application and submit all required documents. These documents can include your W2, pay stubs, divorce decrees or alimony/child support orders, as well as bank statements.



Should You Spend Your Full Mortgage Amount?

Although in theory, you can afford to spend what you’re pre-approved for; there are other factors that you should consider when deciding how much you want to spend on your new home.

Lenders have stringent rules that they must adhere to when deciding how much a borrower can loan. Even with this in mind, they can’t take into account every expense that you will face.

It’s essential to look at all of your other expenses — both fixed and variable — and decide if your mortgage repayments are genuinely feasible. You may find that after calculating your additional costs such as groceries, childcare, and socializing your budget is stretched too far.


If you need to implement lifestyle changes in order to afford the full mortgage amount repayments, you need to consider what you would be willing to give up. If you don’t mind forgoing eating out, for example, to be able to stretch your budget for your dream home, spending the full amount of your pre-approval letter may make sense for you.

For other people, it may leave them feeling ‘house poor’ and unable to enjoy their life outside of their home.


It’s also important to consider whether your expenses are likely to change any time soon. For example, if your mortgage affordability is based on commission and always hitting your sales targets, is this feasible in the long term?

Your pre-approval calculated according to your current debts and income — what is affordable for you today, may not be affordable in a couple of years or —even months — time. This is why it is crucial to truly consider how realistic the upper end of your pre-approval figure is.


If you’ve considered all of your options and are confident in your budgeting ability, you will be able to purchase your new home with confidence. Remember — Your pre-approval letter is a guide; it should not be the only figure that you consider when deciding what you can afford.