The cost of home ownership is one of the most frequently asked questions by first time home buyers. The average real estate agent will tell you to contact their preferred mortgage lender, but Cathy Bureau will go beyond that. This question has a direct and indirect facet so I will touch on both.
1. How much will the lender let me borrow?
A mortgage lender will pre-qualify you based on your income, debt-to equity ratio, credit score, etc. They will arrive at an answer of a monthly payment near 28% of your gross income subject to debt and credit score. They will provide and estimated GFE (Good Faith Estimate) - which breaks down the cost of acquiring the home such as appraisals, discount points, mortgage insurance, amount needed for down payment (Texas Housing Assistance may be applicable) etc. That is a very important part of the process. But, it doesn't help you with the second facet.
2. How will the home expenses effect my budget?
You need to know what the bank will lend to you, but you also need to understand the associated costs of home ownership and its effect on your personal budget. There is a short-term and long-term aspect to this question.
The short-term has to do with your current expenditures and income based on the next 1-5 years. To assist you I have provided 2 worksheets that I can email to you if you register on Cathy Bureau's website. If you are within 12 months of purchasing a home Cathy will be happy to help you formulate a budget and get pre-approved for a home.
The long-term aspect has to do with the life changes that may occur beyond 5 years: retirement, children, re-location, etc. Because that is more complicated it would be wise to have an extended conversation with Cathy Bureau to better consult you in these matters.
Regardless - don't just think about the mortgage amount, the costs of that, and insurance. Think about the short-term and long-term facet of how these new expenses INCLUDING REPAIRS and MAINTENANCE will factor into your daily living and personal budget.
A simple Personal Budget will assist you analyze how you spend money and how the new expenses will impact your current lifestyle.
If you are the analytical type and/or really like to see things graphically, you might prefer this one:
DON'T BE A DINOSAUR! LOVE THE EARTH!
Cathy Bureau, NAR GREEN, EcoBroker, recently obtained the SunAgent certification being test marketed out of New Jersey for real estate solar education. As the founder of Green Home Realty, Cathy Bureau is an entrepreneur recognized in the industry by builders and colleagues for her expertise in green real estate. She is a member of Build San Antonio Green and the Texas Green Network-SA. You can find her via website: GreenHomeRealtySA.com, blogs: SanAntonioHomesBlog.info, Facebook, Twitter, LinkedIn, Pinterest, and Natural Awakenings SA Magazine Please contact her directly to schedule her as a guest speaker or for media interviews for your company events.
CATHY BUREAU - YOUR MOST VALUABLE REAL ESTATE ASSET
CATHY BUREAU Broker/Owner
MBA, REALTOR, GREEN, SFR, ECOBROKER, SUNAGENT
(210) 560-1891 Direct
www.GreenHomeRealtySA.com
I would LOVE to HELP YOU buy or sell in the San Antonio-Austin area. Please call me, CATHY BUREAU GREEN Home Realty (210) 560-1891.
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37 Comments on How Much Home Can I Afford? - Defining Your Personal Budget
Very true. People often forget about all the extra costs of home ownership. Starting with a budget - and sticking with it - seems only logical.
Cathy, great information for the first time home buyers, especially the repair and maintenance budget most of the time are unprepare for it.
Great Graphs! Very thorough explanation that will help a lot of buyers! Thanks!
Cathy, great post and congratulations on getting featured!! Just because you can get approved for "X" amount does not mean you need to buy that much home.
Great post. It is important our clients understand what price fits their budget in addition to what a lender will loan them. I am going to tweet this to my followers.
Great post and valuable information..
Well done! Your post shows your real commitment to your clients to help them understand the complexities of homeownership. Excellent graphics too!
Super helpful! This is the type of added value that encourages consumers to hire brokers for buyer representation.
Great post Cathy. Every potential home buyer should run these figures before they decide on starting the buying process. If every realtor sat down and had their client do this it would save a lot of future heartaches.
A few days ago I wrote a post giving my opinion about why a rent payment should be more than a mortgage payment. One of the reasons is that a tenant doesn't have to pay for maintenance.
Those costs can come as a shock to tenants who mistakenly think that a house payment matching their old rental payment will fit the budget.
Cathy:
Informative post. Telling people that they need to have a budget and they need to stick to it is very hard. Most people do not have budgets and no amount of talking about the value of a budget changes their behavior. You have tied the use of a budget to the buying process. That makes the idea of budget more palatable.
An essential step to determine short and long term goals and objectives after securing the personal financial information. Had RE agents and MLO's taken the time to discover this information, I believe many buyers would have opted out and waited for another or more suitable opportunity. Excellent post.
I rthink the attitude people used to have was to buy as much home as the bank would allow them to buy. However, people are getting more conservative.
Cathy, so much great information for first time home buyers! Very well written!
Thank you to all the FAB-U-LOUS people who added comments today. I apsl appreciate those who hit the "subscribe" button - and I know you know who you are.
Since we are all spending time with family I'll be brief on my commenters - Thank you.
One comment stood out to me as a concern. While I greatly appreciate all comments, and it is a discussion forum, I need to clarify as I am concerned that my blog may have been taken out of context to some degree by at least one blogger. I was featured last month on rent vs own, the real cost of owning (125 comments +). I ran a financial equation comparing a $1200 payment for rent vs. a home with a $1200 mortgage and included the cost of acquisition and disposition, and only assumed 1% appreciation of over 10 years. The results were in the neighborhood of a $48,000 gain vs. a $144,000 expense. In my humble opinion it is wise to run numbers on these types of scenarios. On occasion, on a short term basis or highly uncertain market, etc. then maybe renting is better. Lots to consider that's for sure.
Hi Cathy,
Very informative and detailed. Bookmarked it. Have a great Thanksgiving!
Wow Cathy, As an engineer and a numbers person you knocked my socks off. Great post & data!
Maybe if some of our short-selles would have analysised more of their expenses before purchasing the housing market would not be in the current situation we are in now. Great tool for all buyers.
What a great idea! Anything we can do to help first time buyers will ultimately turn them into life time clients. You have gone above and beyond.