You've reached that point in your life, somewhere between 18 and senilty, that you want a home of your own.
You locate a REALTOR® or better yet a Loan Originator and make your first mistake. You ask "how much can I afford?"
This is possibly the second most asked question in real estate, the first is "what's the rate?" It is the dumbest question! How would your REALTOR® or Loan Originator know what you can afford? The Loan Originator and some Agents can determine what you qualify for, but that has little relevance to what you can afford!
As you read about the mortgage crisis of the last few years, keep in mind except for the small minority involving fraud each of those troubled home owners had qualified for their loan! Qualifying and affording are not the same! Often not even close!
Only you, the potential home buyer can decided what you can afford. If your current rent is say $1,350.00 and you pay all the utilities you can probably afford close to that $1,350 each month. But, as the home owner you will now have to deal with maintenance, insurance and taxe expenses that the current owner takes care of. If each month you are able to save another $1,000.00 you might be able to afford as much as $2,350.00 per month.
If on the other you ask your REALTOR® or Loan Originator what do I qualify for, they will look at your gross income and apply a factor dictated by the loan program of 28%, 33%, 45%, 50%, or more. This may mean that you can get the loan, it doesn't mean that you can afford to make the payments.
Before you ask anyone anything, ask yourselves, what can I afford? Start with your current rent, then determine what additional income you could add to it. Are you saving money each month? Do you have long term bills being paid off? Are you getting a raise? Is there something your willing to give up that would save money? Are you really willing to give up anything?
Now that you've come up with your own number you need to ask yourself the questions no professional legally can. Do you really want to buy a home with someone you're not married to? Are you going to stay married? Mortgages are for 15, 30 or even 40 years, relationships are from now until the next argument, marriages sadly often are not much longer. How would you make the payments if one of you moved out? What if by plan or happenstance one of you should get pregnant? Would you be able to make the payments during and after pregnancy?
Now is the time to talk to the loan pro, and ask the proper question. "We can afford $2,500.00 per month principal and interest (the loan payment) taxes and insurance, what's the best program we qualify for and how much can we buy with our down payment and a new loan?
Your Loan Originator can't legally deny you any loan you qualify for, don't blame them if you can't afford the monthly payment! Don't blame your REALTOR® they legally must sell you any home you want and can afford. Only you can decided what you can afford!
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