Choose a Payment You're Comfortable With, not What You're Approved For
I can think of a couple of HGTV shows where the Realtor takes their Buyer to a neighbor full of homes matching the Buyer's dreams, only to inform them these homes are far above their budget.
This happens to me sometimes when in route to the target neighborhood we drive through more upscale neighborhoods where I get asked by my Valued First-Time Buyers, "do you have an idea of what these Homeowners earn to afford these homes?" My answer is, "despise not the day of small beginnings!"
I explain to my Valued Buyers, they might be surprise to discover these Homeowner's incomes might be similar to theirs, only this may be their 2nd or 3rd home. I tell them the difference between where you are now and where they are, is the fact these Homeowners probably first started out purchasing a very affordable home matching a budget allowing them to pay their mortgage payment, meet their other living expenses with some disposal income still left over for savings, and some entertainment.
I stress to my Valued Buyers to understand, the joy of ownership really happens when you pay detailed attention to your reality budget, and purchase an affordable home as your first home.
Those homes they're admiring mostly represent Homeowners who purchased their first very affordable home, took good care of it, sold it for a profit when they needed to upgrade, and used the net profit from the sale as a down-payment towards their next home. They simply repeated the process over-time to end up living in their upscale neighborhood.
Yes, there will come a day again when the real estate market will go back to homes appreciating over-time, enabling Seller's to realize enough appreciation in their homes, there will be no need to touch savings in-order to upgrade their lifestyle. Appreciation just means the home increases in value. Yes, it is happening in some segments of the Chicago and South Suburban market-place now!
In fact, I'm a living example. My first home was 1300 square-feet. I lived in it for 9 years. It appreciated in value enabling me to sell it and purchased a 2500 square-foot home. I lived in it for 7 years. It appreciated enough in value enabling me to sell it and custom build a 5100 square-foot home I've lived in for the last 9 years. Home-ownership has been one of the smartest investments I've made in my adult lifetime.
So, when thinking about your first home, please don't think so much about who might be impress with where you live. Keep yourself reminded of the fact the majority of the people you desire to impress, given you encounter a financial challenge in paying your mortgage, if you were to turn to them for financial help, would most likely tell you to think about selling, or downsizing before they would come through with the money you need to pay your mortgage?
My respected colleague Tim, who serves the Atlanta marketplace explains the value of selecting a home comfortable to your budget. Enjoy....
Forget about what you can be pre-approved for. Figure out what you are comfortable with in your budget. Don't get sucked into a higher priced home just because some banker says that they will loan you the money for it. Only you can decide how much money you choose to spend on housing.
You really need to sit down and draft a budget. It's not what most like to do but you need to plan ahead and set yourself up in a situation that works for the money you have coming in. Otherwise you are setting yourself for financial failure.
Estimate utilities, taxes, insurance, maintenance. You need to fund a reserve fund for when the big items need replacing. Many think that by buying a single family home instead of a condo that they can avoid those costly monthly condo association fees. Guess what? Those fees aren't some profit center for some business. They are the cost of maintaining real estate that is shared among all the owners in that community. Those costs can be ignored if you own your own individual house but those costs don't magically disappear. Real estate is an asset that depreciates over time unless you keep sinking money into it to maintain it. Look at what happens to those homes that sit vacant during foreclosure. One small leak that doesn't get fixed in a timely manner can destroy a house. Prepare for it. Sooner or later the roof will leak and the AC will breakdown.
While you are focusing on your finances, are you paying too much on car insurance?
Geico is right. You might be able to save 15% with a 10 minute phone call. But I've found that Geico isn't always the cheapest. I recommend you give my insurance broker a call. She has access to many different companies and can shop for the best rates for your particular situation. She saved me more than Geico could. All State and State Farm never are able to get close to what she finds for me. Give Tricia Harris a call
at 770-973-4000 ext. 28. She's with Phoenix Associtates. She knows her stuff and will not only save you money but will make sure you have the proper coverage.
How about life insurance? Are you getting the best prices for the coverage that you need? I use a broker who shops for the best plans for me.
Call Maury Shapiro at 404-310-1327. He also knows his stuff and won't try to sell you stuff that you don't need. He does the same thing that SelectQuote does. He shops a lot of companies and finds the one that matches your needs the best at the best price. Just because a company has great rates for a young guy doesn't mean their rates are good across the board. Some companies go after specific market segments and price their products accordingly.
After you get you financial house in order, then it's time to get a pre-approval letter so you can go out shopping for a house.
Do it now. Don't wait until you see a home you really like. To be taken seriously when submitting an offer, a pre-approval letter is just expected upfront. Most bank foreclosures won't even consider an offer without a pre-approval letter or statement showing proof of funds.
A lender can usually get you approved in about 10 minutes over the phone. They pull your credit and ask you about your income and assets. It's not a big deal.
You aren't locked in to that specific lender. You can make that decision during the due diligence period after you have a binding contract. So don't worry about getting locked into someone you don't know much about yet.
Tell the loan officer your specific situation. The details matter. Sometimes it gets a little tricky when you are starting a new job. You can't get the loan until you receive your first paycheck.
If you will be renting out your previous home, sometimes you need to have a signed lease in hand before they will lend you money for your new home.
The logistics are very important to avoid last minute surprises.
Know exactly what documents you will need if you own a business instead of being a W-2 employee. Sometimes it's more than just two years of tax returns.
How much money will you need up front? Escrows for taxes vary depending on what month you close. What day of the month you close on will impact how much prepaid interest you will pay at closing. It also determines when you first payment will be due. If you close on September 29th your first payment will be November 1st but if you close on October 2nd your first payment will be December 1st. But in the latter case you will prepay October's interest upfront at closing.
If you are shopping for the best rates, just make sure you are comparing apples with apples. I would get quotes at the same time for a specific interest rate and then compare the costs shown on the good faith estimates that they send you. Make sure the day of the month for the closing is the same for all of them and also that the estimates for items such as insurance and taxes and attorney fees are the same. You just want to compare what their specific lender related fees are. All the other things are irrelevant to the decison on who is giving you the best deal. So be careful and know where the bottom line numbers are coming from.
Three loan officers that I recommend are:
Natashia Bush
Prime Lending
770-241-5029
natashia.bush@primelending.com
Craig Bland
Brand Mortgage
678-234-0545
Cameron Stevens
Bank of North Georgia
404-966-2135Pick someone you feel comfortable with and then get started. I don't benefit from recommending these people other than the fact that I know they are very competent and will be able to get the job done. They also offer many different programs and very competitive rates. The biggest thing is that they are very honest and upfront about everything. They aren't going to mislead you and keep important details in the fine print. Don't get sucked in with some nice sales gimmick and then find out that it isn't what you expected.
One last question I get asked a lot. How much should I have the pre-approval letter state that I am approved for? Some are afraid to show that they are approved for much more than the price of the home they are interested in. They don't want the seller to think that they can afford to pay more than what they offer. They might have a point but I would ask you to put yourself in the shoes of the seller.
If you had two offers for $300,000. Buyer one showed a pre-approval letter for $300,000 but Buyer two showed a pre-approval letter for $500,000. Who would you consider was the stronger buyer who you would want to do business with? Personally, I would go with the buyer pre-approved for $500,000. I would think that the other buyer was at the edge and any small change in the deal could end it for them. But think that through and decide for yourself.
My next article is how to go about researching different areas around Atlanta, especially if you are being relocated and you don't know much about Atlanta.
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