When we get a call from a 1st time buyer who is pre-qualified for financing, our first question is usually what amount they have been qualified for. Our second question is what amount they are comfortable with. There is a big difference. Too often, buyers will automatically begin to look for properties at the high end of the approval amount, but sometimes that can lead to problems down the road.
We always tell our buyers to decide what montly mortgage payment would be the most comfortable for them and then go from there. Although the principle and interest will be will be easy to figure out in a payment, what often gets forgotten is how much taxes and insurance can add to the monthlyÂ payment. Although insurance costs might not vary too much, the amount of taxes can vary considerably, depending on where you choose to live.
Let's look at an example. Two homes, similar in size and features, are being sold for $250,000 but they are in different areas. House #1 has an annual tax bill of $3,600, thereby adding $300 per month onto the mortgage payment. House #2 is in a different area and has an annual tax bill of $4,800 which will add $400 onto the mortgage payment. That extra $100 a month could really put a financial burden on a buyer.
When a buyer is approved for a loan, the mortgage company takes into account the buyer's income and debts, but what never gets taken into account is the buyer's lifestyle. Are you someone who likes to go out to dinner twice a week? Do you enjoy weekend trips away? Do you have a hobby that you spend money on? Buying a house should not mean that you have to give up the things you love doing.Â
We don't want to see anyone going broke by buying a house that they will have difficulty affording, or that they will have to greatly sacrifice their lifestyle. It just doesn't make good financial sense and it can leave the buyer feeling trapped and resentful.
Choose a home with a payment that you will be comfortable with. You may be able to afford more, but as Jeff and I say, what's the price of a good night's sleep?