How Much Can You Afford? How Much Do You Want to Afford?

By
Real Estate Agent with RLAH Real Estate AB95346

Before I start working with buyers, I make sure they have been pre-approved by a lender. And I've noticed that I usually have two numbers to work with.  There is the lender's number, then there is the other one.  

The buyer's number.

Most of the buyers I've encountered want to spend a lot less for their new home, and for their monthly mortgage payments, than the amount on their pre-approval letter.  So my job is to help them figure out what their monthly housing budget - looking at utilities, maintenance, tax savings - the whole picture.  Then we translate their number to their after-tax PITI (principle, interest, taxes and insurance).  And I find them the very best house that fits their budget.

Then I find my buyers the very best house at their price.  And I often get a call from the lender along the lines, "But they could have afforded so much more!"

Then I explain the facts of life.  The buyers' values are not consistent with paying a big chunk of their income on a house.

  • They enjoy a great vacation each year.
  • They might want to expand their family.
  • They like to eat meat every so often.
  • They want to have the option of retiring early and are building a nest egg.
  • They are financially conservative and prefer to live below their means.
  • They don't want to be house poor.  

So the big picture goes beyond debt to income ratios.  

And I'll bet I'm not the only agent who attracts clients who want to do more than work to pay a mortgage.  Maybe some of my buyers watched family members struggle with short sales or foreclosures.  Maybe they are less willing to bet the house on their being able to "grow into" a stretch mortgage. They can sell their first home and use their equity for a bigger one.  

Maybe they are less willing than people used to be to bet the house on their being able to "grow into" a stretch mortgage. When it's time to stretch, they can sell their first home and use their equity for a bigger one.  

Or they can stay put and take more vacation and retire earlier!   

Whatever my clients' financial values might be, an important part of my job is to honor them.

If you are planning a move to or from the Washington, DC metro area, I can help.  Please contact me at 202-549-5167.  

Search online for homes in Washington, DC and it's suburbs.

 

 

 

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Ambassador
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Ron and Alexandra,  you're right!  I think that says it all.

Dec 18, 2016 09:45 PM #2
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Paul S. Henderson, REALTOR®, CRS
Fathom Realty Washington LLC - Tacoma, WA
South Puget Sound Washington Agent/Broker!

I do worry about my clients becoming mortgage poor Patricia Kennedy 

Dec 18, 2016 10:34 PM #3
Rainmaker
3,407,082
James Dray
Fathom Realty - Bentonville, AR
Exceptional Agents, Outstanding Results

Good morning Patricia.  I know we can afford more than what we have however, like most that would mean we would be house poor.  My wife won't hear of it.

Dec 19, 2016 03:53 AM #4
Rainmaker
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Nina Hollander
Coldwell Banker Realty - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Great point, Pat... just because you can doesn't mean you should. I've noticed a real trend over the past years with my clients who don't borrow or buy up to what they can afford on paper.

Dec 19, 2016 04:11 AM #5
Rainmaker
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Dorie Dillard CRS GRI ABR
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good morning Patricia Kennedy ,

I love this post! These are the things I go over with my buyers too. I want to learn what is important to them and listen to their concerns and then honor how much they want to spend. It's so important to make sure this is done up front before looking. I don't want them to fall in love with something they DON'T want to afford and then nothing else measures up. 

Dec 19, 2016 05:08 AM #6
Rainmaker
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Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Patricia Kennedy, 2 numbers, that is a excellent point.  I hope the buyers are more real with their number.

 

Dec 19, 2016 06:36 AM #7
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Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

I never push my buyers to spend more. I gently lead and if it feels comfortable for them, then we go higher. I had to smile on your comment that they may occasionally like to eat meat. Boy is that an investment!

Dec 19, 2016 07:26 AM #8
Rainmaker
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Kristin Johnston - REALTOR®
RE/MAX Realty Center - Waukesha, WI
Giving Back With Each Home Sold!

When   a buyer says they are preapproved for X, I always say, so, you dont want to spend that total x though right often times?

Dec 19, 2016 07:40 AM #9
Rainmaker
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Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hi Pat -- unless the lender is going to have a room in the house and pay for it, their role in a real estate transaction is to assist in making it happen on the buyers' terms.  

Dec 19, 2016 07:40 AM #10
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi Pat - That's a very smart way to serve your clients' interests - it shows immediately that we're working on their behalf and not trying to max out our commission.

Dec 19, 2016 12:25 PM #11
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Paul, after 2008, I think a lot of us are giving affordability more weight with our clients' other criteria. 

Dec 20, 2016 09:48 AM #12
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

James, I think you married a very wise woman!

Dec 20, 2016 09:48 AM #13
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Paul, I remember questioning the "one and only true religion" thing when the nuns tried to explain it in grade school.

Dec 20, 2016 09:59 AM #14
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Nina, in our parents, we thought of this attitude as a bit of a "Depression Mentality".  

Dec 20, 2016 10:03 AM #15
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Dorie, great point!  This is a conversation I think is important to have very early in the buying process. 

Dec 20, 2016 10:04 AM #16
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Will, I'd say that all of my buyers are more conservative than their lender.

Dec 20, 2016 10:04 AM #17
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Debbie, I remember once I gave a first-time buyer a really great vegetarian cookbook.  She got the point!

Dec 20, 2016 10:05 AM #18
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Kristin, and I'll bet you are right!

Dec 20, 2016 10:06 AM #19
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Michael, the lender also plays a big part in helping buyers determine what their terms are.  We do that, too.

Dec 20, 2016 10:06 AM #20
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Dick, maxing out our commission is not a great long-term career move!

Dec 20, 2016 10:07 AM #21
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