Kate, how much can I afford in a mortgage? Here's the answer, although it may not be what you expect to hear from me. You and only you know what's affordable in a monthly house payment. Not your mother, not your accountant, not your co-worker, not your real estate agent, and certainly not your lender.
Hi, my name is Kate Ford. I'm a retired mortgage broker. I've helped thousands of homeowners obtain mortgage financing.
For over 20 years, homeowners have been asking me the same question in many different ways. How much can I afford to borrow? How much house can I afford?
You may be wondering this too. But don't expect for a lender to accurately answer your question!
Please listen carefully. Borrowers often confuse how much house they can afford with the amount printed on a lender's pre-approval certificate.
Don't get caught in the trap of allowing a lender to determine if you can afford a larger mortgage payment than your budget dictates.
Instead, ask yourself this question.
Can I still afford this mortgage payment if I need to buy another car?
How much you can afford in a mortgage depends on your budget, where you want to live, the size of your family, your desires, and future plans.
These are important questions, many which a mortgage pre-approval won't take into consideration or ask.
As a rule of thumb, up to 35% of your gross (before tax) income can go to housing, with the remainder divided between transportation, debt, living expense, savings, and enough left over to have a little fun. But it is not safe to assume that this rule of thumb will apply to you.
So make a budget. Start with your monthly expenditures. This would include payments on credit cards (revolving) and car payments (installment). But don't limit your budget to long-term debt. Include your food, utility, cell phone, gasoline, and auto expenses.
Next allot for college tuition, family obligations, health insurance, day care, savings, and retirement planning. Yes, don't forget a mental health week once a year, aka a vacation.
Only after calculating a budget will you be equipped to decide how much you can afford in monthly house payments. In other words, you can't assume that the 35% rule of thumb for housing expense is affordable for you.
Then stick to your plan, even if your banker says are qualified to borrow more.
In fact, think about it like this. Regardless of the loan amount your bank approves, no one but you will be responsible to pay it back.
So when a lender calls about your mortgage pre-approval with news that you are able to borrow more than anticipated, ask yourself this question...
Once you have determined how much you can afford in a mortgage payment,mortgage pre-approval is your next step for a successful home buying experience.
After all, it's your mortgage. No one cares about your homeownership than you! You deserve the best!
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