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How much can you really afford?

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Mortgage and Lending with The mortgage help you want when you need it.

Now that's the 85 dollar question, isn't it? There are many wonderful resources that explain the information lenders need to pre-qualify and pre-approve you for a mortgage loan. Call me if you have any questions about this or need to be preapproved. Your mortgage lender reviews and verifies the information you give them and then they determine a payment amount that you qualify for. They will give you an idea of the loan amount and purchase price range you should be looking in.

This payment amount that you qualify for is your total payment amount. This amount includes your repayment of principle, your interest payment and your payments for real estate taxes, homeowners insurance and mortgage insurance as required. This is very important to understand since unless you have a specific property in mind, have already gotten the tax information from your Realtor and a quote from your insurance agent this can impact the amount of loan you qualify for. Huh???? Your lender already told you the payment you qualify for so why would the loan amount and consequently the purchase price change?? I'll let you in a little secret, unless the lender knows the exact tax and insurance payments we (gulp) guess. Please work closely with your Realtor so you are targeting neighborhoods where the combination of price and tax amounts will fit in with what you qualify for.

Now you know what you qualify for it's time to think about what you can afford. These are often two very different amounts. Your lender knows what your debts are but they may not know that you pay hundreds of dollars a year so your daughter can be a cheerleader or that you have an expensive gardening habit. Sit down and write out your monthly and yearly expenditures, build in regular savings as well as an emergency savings and add what your lender tells you that you qualify for in a housing payment amount. You might be shocked to find yourself left with a negative number when you subtract that number from your take home income. When you are figuring out what you can afford be honest with your self. Don't figure out what you can afford based on a raise or promotion you haven't gotten yet, don't discount your "fun" money and most importantly don't short your savings amount.

I will leave you with this, only you know what you can afford. Unless you think you can afford more than you qualify for. Don't be pressured by your lender, realtor, cousin, pastor or anyone to spend more than you can afford. Don't buy with your heart, buy with your head!

 

Christina Moock
Cutler Real Estate - Canton, OH
REALTOR - Cutler Real Estate

Good points.  Many people think they can afford this payment because the bank said they could.  The bank does not know how much money you spend every month on clothing, food, restaurants, movies etc.

Nov 05, 2008 07:09 AM
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life

Beth - Hence why I am a big fan of The Sleep Principle, having a payment that affords one the ability to sleep well at night.  Good points!

Nov 05, 2008 07:18 AM
No Longer Active
Real Estate - Fallon, MT

Beth,  Good point to recommends people really think about their budget.  I know I would never be comfortable with the huge monthly payment that lenders feel I am qualified to pay. 

Nov 05, 2008 08:01 AM
Ilyce Glink
Think Glink Media - Chicago, IL
Best-selling author, award-winning TV/radio host.

Beth- I just wrote a blog last week about creating a budget, and that means being very realistic and almost conservative about what a person can afford. You never know when an unforseen expense will pop up! Thanks for the post!

Nov 05, 2008 11:20 AM
Jennifer Monroe
Indigo Home Team powered by Compass - Charlotte, NC
Real Estate REALTORĀ®/Broker/Designer

I preach this to my clients constantly. If they come to me already pre-approved for a certain amount, I end up being the bad guy voice of reason when I recommend that they scale back their search range in favor of quality of life. I assure them they can still find a wonderful home for a little less money. They always do and in the end, they always thank me for it.

J... I love the "Sleep Principle"! I'm going to use that :)

Hi Dano :)

Hi Scott :)

Nov 06, 2008 05:07 AM
Gary Steuernagel ASSOC. BROKER, ABR, CRB
Keller Williams Southwest - Sugar Land, TX

Beth:  Excellent points!  I have seen so many people who bought the maximum that they qualified for and when the first economic reversal hits them they are in serious trouble.  So many people hear what the qualify for and as you said don't think about what they can afford.  When times aren't booming they either loose the house, loose the marriage or in the best cases have to sell the house and bring money to the closing table.  The message to be repeated to everyone is think with your head and buy less than what you can afford!

Gary

 

Nov 07, 2008 04:22 AM
Beth Forbes
The mortgage help you want when you need it. - Center Valley, PA
Your 24/7 loan officer

Christina- Most people cannot afford what the lender qualifies them for.

Sardi- I like the "Sleep Principle". I think I'll steal it!

Dan- It was your post on $60.00 a day that inspired me to write this.

Ilyce- Conservative budgets are the way to go, you just need to stick to them!

Jenn- No one wants to be house poor but so many people want to buy at the top end of what they qualify for. Thankfully, there are people like you to help them make those decisions.

Gary- It's awlays so sad to see things like that happen. You should always plann for the worst and leave yourself a cushion.

 

Nov 07, 2008 04:47 AM