First time buyers: What they want vs. What they can really afford. The all-telling mortgage pre-approval.

First time buyers: We all have them. We all love them (hopefully). We all NEED them. Especially in the crazy market we're in these days. They are among the only ones still out there, motivated enough to take advantage of the low interest rates and the $8,000 first time home buyer tax credit. They are a little wet behind the ears, and most of the time they expect the world. That's why it's my job as a Realtor to educate them and make them aware of the reality of home buying. A lot of them (in my experience, at least) are looking to buy in the 250k to 400k price range. What has to be understood about the New Jersey area, is that most of the time, buyers will not be paying for actual house. What they will be paying for is location. I know you have heard "location, location, location," many times before. But the phrase rings the truest in the Northern New Jersey area. To live in Northern New Jersey, in a suburb close to NYC, with a commute of 40 minutes or less to Mid-town Manhattan, in towns like Montclair, Glen Ridge, Maplewood, and Livingston, one cannot expect to spend $350k and expect a mansion with the tennis court, Olympic-size pool, state-of-the-art gym, 8-car garage, live-in butler...but I digress. As much as I would like it to, it is just not happening. To most first timers, it's a harsh reality. This is why I cannot stress enough why obtaining a bank pre-approval is more important now, than ever before.

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Above, $400,000 home in Oklahoma.

Above, a $400,000 home in Northern New Jersey.

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For some reason, obtaining a bank pre-approval seems to be a scary thing for buyers. Personally, I have not been able to figure this out. This is why I always recommend a lender that I work with and trust, for them to get in touch with. It's a 10-15 minute phone (or in person) conversation, and at the end of that conversation they will walk away knowing how much they can afford to buy their home. It really is a fantastic piece of information to have, because it takes the guess work out of everything.

Here is a little secret: For a rough estimate to figure out your price range, just take your annual salary and multiply it by 4. Believe me when I say this: it is a very, very, rough estimate. It does not take into account your current debt or credit score, so I don't suggest using it as the end-all and be-all. Banks, these days, are not taking the risks that they used to when granting the pre-approval amount. I mean, can you blame them? A lot of the major banks are in hot water, with people foreclosing on their homes left and right.

Another reason why pre-approvals for first-time buyers are so important- is because it avoids disappointment. I cannot tell you how many times I have worked with clients who were unprepared, and we were looking at houses that turned out not to be anywhere near their price range. They waited until they found their dream home to get pre-approved, only to find out that the home was too expensive. There is no point in falling in love with a property, only to find out that you can't afford to buy it. As a buyer, you may think you know what your price range is, but the bank may disagree. After all, it's their money you are borrowing.

I will leave you with one little piece of advice until next time. Many buyers make a common mistake of making a huge purchase before they get their mortgage commitment. They go out and buy a car, or put an expensive vacation on their credit card that they're not able to pay off immediately. I advise all of my clients who have plans to purchase something big, other than the house, not to do so until after the closing. The bank will see it as additional debt, and they will take that mortgage commitment away from you just as quickly as they gave it out. My advice: house first, new car second! Thanks for reading :)

Next Week: The Top 10 Worst Property Photos Taken By Realtors (in my poinion, of course)!