Determining what you can afford

[tpurcell4]

When looking at purchasing the right home home, you need to determine what you can afford. This is a decision that you must make for yourself.

Your mortgage professional will work with you in determining the price that you can qualify for, however the number they say you can qualify for is seldom the amount that you believe you can afford. This is why one of the most important first steps is determining your budget. Looking at your income and expenses you will be able to come up with a monthly amount that you are comfortable with paying for your mortgage, property taxes, and utilities along with your other household expenses.

Once you determine this number per month, your mortgage professional can show you what your buying power will be to keep you within budget.

It is also recommended to put your budget within a range (as you may find the right home, but it may be just outside your ideal budget). So if your ideal budget is $1,800 per month, you bottom end may be $1,600 per month, with your top end being $2,000 per month.

Why is it important to determine this number prior to meeting your mortgage professional?

When qualifying you for a loan, we look at your Gross Income (before tax) and we only factor in hard expenses (mortgage payment, property tax, heat, and minimum monthly payments of credit loans - credit cards, lines of credit, student loans, vehicle loans). We do not factor in investing, life insurance, vehicle insurance, gas, maintenance, etc. into our calculation. Therefore if you are purchasing at the maximum purchase price provided by your mortgage professional, you may be stretching your budget a little bit too thin.

Cheers!

Todd Purcell

[blownz]

This is a simple step that most people never think about and good for you to bring up (most brokers wouldn't/don't). I always cringe when I hear someone say they are looking for a new house or car and say they need to talk to a mortgage broker, banker, or dealership to see what they can afford. That is the worst way to do it.

If couple A has a combined income of $150K a year and have no kids (and never plan on having any) they will get approved for the same size mortgage as couple B who make the same money but have 2 kids and pay $18K a year in child care and have other expenses due to the kids.

One couple may be able to comfortably afford the max mortgage approved by the bank, but they other one definitely will not. And the person getting commission for the loan typically will not care.

[tpurcell4]

^^
Thank you!