If a bank is willing to lend you a certain amount of money, does that mean it’s the right amount to spend on a California dream home? The short answer is not necessarily. Mortgage preapproval is an excellent way to find out how much money you can afford to borrow. However, there are important factors to consider before you spend too much on a home.

Consider your day-to-day expenses

While you feel as though the lender is digging through all of your finances, there is plenty they don’t know about. For instance, a mortgage application doesn’t take into consideration regular expenses such as car insurance payments, medical costs, groceries and entertainment.

It’s crucial to budget carefully to account for these expenses along with your preapproval amount. In some cases, your everyday expenses might mean a higher monthly mortgage payment is too much of a burden.

Expect the unexpected

It’s best practice to have a financial cushion of some kind. Whether it’s an emergency fund or a separate savings account, this money should be put aside to cover unexpected costs. 

Anything in your home could need repair or replacement, from the dishwasher to the foundation. If you max out your budget on a huge mortgage, you may leave yourself without a valuable safety net.

Do more with your money

Your dollars need to stretch far past your mortgage payments. Saving for retirement is another reason to pursue a smaller mortgage amount, as you’ll have more available every month to add to your long-term investments.

It’s never a bad idea to have extra money for fun, either. Entertainment, vacations and other expenses are important to living a happy life – ideally, you don’t want to feel guilty about spending money on them.

While it’s easy to fall in love with an expensive California home, be mindful of your budget and everyday expenses when choosing a mortgage.