Buying a Home You Can Afford
“My mortgage lender says I qualify for $300,000 and that’s what I want to pay for my home”. What is your advice to people who say this and are determined to go for the max instead of a $200,000 or $250,000 where they might be a little bit more comfortable?
We try to have a lot of conversations about budgeting. Just because you can qualify for it doesn’t mean that’s what we’re going to put on your qualification letter. Because again, that’s exactly what happens. The first thing we’re going to talk about is what are you comfortable with. Before we talk about what we think you qualify for, how much of a house payment do you think you’d be comfortable with.
“Well, Robert I think we’d be comfortable with $1,200 or $1,400.”
Well, good. You may qualify for $1,800 or $2,000. But let’s start with what you’re comfortable with. Because again, we don’t know your habits. How often do you eat out? Do you pay for daycare?
So when you’re being qualified for a mortgage, we only look at your debt. Because you can’t handle– you can’t stop that. The idea is anything you could turn off. Well, if your wife loses her job, or if the husband loses his job, then you could pull the kid out of daycare and take care of him yourself. You could cut off the cable. You can quit eating out.
And so we don’t factor those into qualification because we know, if you cut your lifestyle back to the basics, you can make the payment. But is that what you want in life? Do you want to be in a situation where all your income is going into your house and you can’t afford to do things you like to do?
Figuring Out How Much Home You Can Afford
I always like to start the conversation with how much can you afford? And a lot of home builders hate this. They want their preferred mortgage company to tweak you up as high as you can because they want to sell you every option, everything they can.
We really like to understand what’s going to make you comfortable? And then again, watch out for the gotchas like higher taxes. Because if you tell me you want $1,200 payment, and all of a sudden the taxes are $300 a month instead of $200 a month, well guess what, your payments going up by $100. And even though you still qualify for it– and this can be a trap because– so if you only qualify for $1,200 a month, and you fall in love with a house that’s $1,300, you come back to me, we have to say no. Because you just don’t qualify.
But if you do qualify for the more money but you were just trying to stay conservative, now you have a harder time trying to convince your family and everybody else–
“Well, honey, the mortgage company will give us the loan for $1,300 a month. Why aren’t you comfortable with it?”
“Well, dear, I think we should really stick around $1,200.”
“Well, we can get approved for $1,300 though and the house we love is $1,300.”
And we see life people fall into this trap and they end up buying more house than they’re comfortable with. They could afford it. But now they have to make lifestyle changes. And not everyone’s willing to make those lifestyle changes, which is how people can get in trouble with owning a home.
For more information and advice on buying your next home, visit our Complete Mortgage Guide.