Let’s say you walk into your local electronics store – call it Pinnacle Purchase – because you want to buy a television. You walk down the aisle, checking out all of the features, pushing the buttons, flipping through the channels. Lots of shiny toys to play with.
Finally, after a few hours of checking out every model Pinnacle Purchase carries, you settle on the 50-inch 3-D plasma screen. You get one of Pinnacle Purchase’s Tech Sherpas to lug your prize up to the register. Another Tech Sherpa scans the barcode and says “That will be three-thousand, two-hundred forty-seven dollars and twenty-eight cents, would you like to put that on your Pinnacle Purchase charge?”
“Uh, no… I…” you stammer as you reach for your wallet. “I’ll just…” You open your wallet to find a five-dollar bill, a receipt from the Chinese restaurant down the street, and your debit card. You take out the debit card and hand it to the cashier. “Just put it on this.”
The cashier swipes the debit card through the machine. The machine beeps (or was that a laugh?) and the cashier frowns. “I’m sorry, it says ‘insufficient funds.’ Do you have another card?”
“No, I… I guess I didn’t expect it to be so expensive.” The cashier looks puzzled. “Can’t we work something out?”
Hopefully, you are thinking to yourself “I would never try to buy a television without 1) looking at the price tag, and 2) knowing how much money I have in my account.” Of course you wouldn’t, that would be silly. But it may surprise you how many people do that when trying to buy a house.
When most people think about buying a house, they think of how much fun it will be to look at all the listings, pick a neighborhood, and then schedule showings. Your agent will drive you all over town and show you all your choices. You get to admire the beautiful houses, and laugh about the odd quirks of some, and then you pick the one you want to live in. However, without an accurate notion of your financial situation you might find that your agent has been helping you shop above your price range.
Unfortunately for most of us, buying property is not just a question of checking our bank account balance. Lenders want assurance that they will be repaid. They base your ability to be financially responsible in the future on how financially responsible you’ve been in the past. They will also want to know that your income will be enough to cover your existing debts, as well as the costs of repaying a mortgage loan and maintaining a home.
It is important that buyers have a complete picture of their financial situation before embarking on the purchasing process. Reluctance to take these steps early on steps does nothing but create more work and frustration for yourself, your lender and your agent.