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A Buyer's Plea: But I Don't Want to Spend Thaaat Much!

By Michael Jacobs

Industry Observer CalDRE #01165532

January 08, 2011 09:11 AM

And you don't have to spend thaaat much even if the lender says you can!

One of the first steps in the home buying process is applying for and receiving a mortgage pre-approval. After I have first time home buyers(and even move-up buyers) obtain a mortgage pre-approval, the lender will call and/or send me the approved loan amount along with written verification of credit scores, source of down payment and employment history...all the usual things.

There is often a disconnect between the lenders pre-approval amount and the "number" the buyer is thinking. The buyers are thinking of a lower amount and they will ask "why do they(the lender) think I would ever spend that amount on a house?" I think the majority of my clients tend to be a bit more conservative in their home or investor purchases and I could not be happier. I tell them before their mortgage appointment "regardless what the lender says, you are the one who will be making the payments - and that number(monthly payment, closing costs, taxes) has to be comfortable for you."

If you are a consumer, what have you experienced?

If you are a real estate professional or mortgage banker/broker - what have you experienced?

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Krista Lombardi

Prudential Calfornia Realty - San Diego, CA

Yes, absolutely. No need to get in over your head. The location/amenities do have to be in line with that number though:)

Jan 08, 2011 09:17 AM

Diane McDermott

Realtor®, GRI, Landis e2 Real Estate, LLC - Charlotte, NC

Charlotte NC Real Estate Market

I've had similar conversations with buyers and I stress to them they have to stay within their payment comfort zone - for some that's a purchase price well below what they're qualified for.

Jan 08, 2011 09:26 AM

Michael Jacobs

Pasadena, CA

Pasadena And Southern California 818.516.4393

Krista - it's always going to be a balancing act combining price, location and condition(plus amenities as you noted). Thanks for the comment.

Diane - the payment comfort zone is certainly something only the buyers can determine themselves. The lender's opinion is based on different factors and certainly have a great deal of value but as I tell clients --- you are the people who will actually be writing the check every month.

Jan 08, 2011 09:32 AM

Chris Ann Cleland

Long and Foster Real Estate - Gainesville, VA

Associate Broker, Bristow, VA

I have a lender that I recommend that gives them a target sales price based on desired loan payment and gives them the ceiling. We usually work somewhere close to the first figure that gives them the payment they want.

Jan 08, 2011 09:41 AM

Michael Jacobs

Pasadena, CA

Pasadena And Southern California 818.516.4393

Hi Chris Ann -- this is a very practical plan for buyers.

Jan 08, 2011 09:46 AM

Will Nesbitt

Nesbitt Realty at Condo Alexandria - Alexandria, VA

Nesbitt Realty is a family-run brokerage.

Normally it's a 'Whhaaattt? that much?' =D. Stick to what can be afforded. Nothing more or less.

Jan 08, 2011 11:48 PM

Michael Jacobs

Pasadena, CA

Pasadena And Southern California 818.516.4393

Will -- I believe clients who are armed with the facts and figures can make reasonable decisions based on their comfort level and indiviudal situation.

Jan 09, 2011 04:26 AM

Brenda Whitman, Live in Laramie Real Estate

Live in Laramie Real Estate, Laramie, Wyoming - Laramie, WY

Broker/Co-Owner, Laramie, Wyoming

I agree wholeheartedly! The number from the lender is simply a maximum, that doesn't mean borrowers have to go up that high and it is often more prudent not too...

Nov 08, 2012 04:44 AM

Endre Barath, Jr.

Berkshire Hathaway HomeServices California Properties - Beverly Hills, CA

Realtor - Los Angeles Home Sales 310.486.1002

Michael, your old post are being revisited thanx to Ron, I am here and I am of the same opinion just because your maximum is X we do not need to go that high!

Nov 08, 2012 08:36 AM

Kathy Sheehan

Bay Equity, LLC 770-634-4021 - Atlanta, GA

Senior Loan Officer

This is always a lengthy conversation with my clients. I really discourage going to the max! I think it is a recipe for failure.

Nov 08, 2012 09:31 AM

Michael Jacobs

Pasadena, CA

Pasadena And Southern California 818.516.4393

Brenda - Endre - Kathy

Thank you for stopping by and thanks, of course, to Ron for the re-blog of this post that brought you here.

As I tell my buyer clients, unless the lender is paying your mortgage - or part of it, you are under no obligation to spend your "max" -- of course, comfort level is the true test --

not just what a lender says a borrower can "afford".

Nov 08, 2012 01:16 PM

Patricia Feager, MBA, CRS, GRI,MRP

DFW FINE PROPERTIES - Flower Mound, TX

Selling Homes Changing Lives

Michael Jacobs - This is sound advice for any buyer, regardless of when this post was first written. It's something I believe in with my whole heart and soul. Buyers will be tested. Buyers will want to choose the BEST they can afford, but what if....

That's the position I took when I bought my home in 1998. The Lender and my Agent (things were different back in 1998) both didn't know me, as well as I know me. It was a Seller's Market back then and every offer I made was already under contract. The Lender's suggestion was for me to buy to the max he'd lend, telling me it would open up more possibilities for active houses. My Agent said, it's the only way you'll buy a house is this market. Also, both Lender and Real Estate Agent told me I was foolish in putting down so much on a house and not listening to their advice. (Yes! Agent referred me to her Lender who was also related).

I told them, I was not going to increase to the max per the lender's limit and I was not going to buy more than I set for my budget. They felt I was foolish and should have invested the money and put down as little as possible. I chose to listen to my gut.

Fast forward, years later I was let go from the company I worked for (not in Real Estate) and still had a mortgage. More than 1,400 people from the same company were let go on the same day. Many companies were laying off employees. The country was in the preliminary stages of a recession. I became a Real Estate Agent and soon the market crashed. It didn't take long before many people were out of work and lost their jobs.

Because I put so much down, and followed my gut, staying within my limit, managed just fine. If I had listened to the Lender and the Agent back then, things wouldn't have turned out the way they did. Plus, by becoming an Agent before the market tumbled, I learned a lot about the real estate industry.

This is an excellent post and great advice you provided for anyone.

Jun 26, 2018 01:39 PM