When most people begin their home-buying journey, they often jump straight into mortgage shopping or checking their credit scores — sometimes even touring homes — before determining what they can truly afford. This is especially true in a rising real estate market, where the fear of missing out (FOMO) can cloud rational decision-making. Despite knowing they lack sufficient savings for a down payment, many get caught up in minor details, such as debating whether a 792 FICO score will secure a slightly lower interest rate on a mortgage compared to a 789 score.
Starting with mortgage hunting is a common mistake. Why? Because the mortgage industry is always eager to lend, as long as it benefits them. If you haven’t carefully calculated what you can truly afford, you risk paying too much for a house you think you must have. People rarely get emotionally attached to stocks or bonds the way they do with real estate.
When applying for a mortgage, lenders primarily assess your ability to repay based on your income. Contrary to what some might think, a mortgage is not a loan against the house itself or any assets you might have. It’s essentially a bet on your future income. The property is just collateral, something the lender can sell if you fail to repay the loan. The assets you disclose, like cash or brokerage accounts, are only of interest to lenders as sources of potential income to cover the loan. No matter your asset wealth, without a steady income, securing a mortgage will be challenging.