Home Buying Advice: Qualifying for a Mortgage vs What You Can Really Afford

Ahh, buying a home. It’s both scary and exciting at the same time and this is the time of year that doing it is in full swing. Whether you’re shopping for your very first home or you’ve got a few houses under your belt, it’s easy to get caught up in the shopping frenzy. What could be more interesting than touring someone else’s home that you could purchase and make your own? Well, perhaps buying a lot and working with an architect or builder to design your own new place, but either way, it stirs the imagination.

In all the emotions that revolve around choosing how many bedrooms and bathrooms your house has, the siding, fixtures, and everything else, there is a reality of how much it will cost and how you will pay for it. What impact will buying or building this new place have on your regular monthly expenses as well as your long term financial health? When you reach the point of asking yourself the all-important question of “Can I afford this?”, it’s critical to remember a few key points.

Just Because You Qualify For the Mortgage Doesn’t Mean You Can Afford It

Mortgage lenders are there to make money, which ultimately means getting you in the biggest, most expensive mortgage they can possibly qualify you for. This doesn’t mean they’re all out to get you, far from it. Some lenders are much better than others about not letting you get in too deep but they are harder to find. Just be aware that they have a profit motive to get you into a mortgage if they can and they will only consider your financial situation as far as their regulatory and underwriting rules require them to. They’re depending on YOU to put the brakes on when it comes to whether you max out your mortgage or not.

Why shouldn’t you max out your mortgage and get the biggest, best house you possibly can? There are a LOT of reasons not to do that, too many to cover in a single blog post. Suffice to say that if you’re carrying your maximum debt load and something, anything, comes along and trips you up financially, the fall will HURT and you’ll have a devil of a time trying to pick it all up and walk again.

Expenses Mortgage Lenders Don’t Ask About

Your family financial picture certainly includes housing expenses but if this is your first time buying a home, you need to know that the mortgage isn’t the only expense you’ll have. If you’ve previously been a renter, you’ve had the luxury of calling the landlord or property manager to get things repaired or replaced at their expense, not yours. Now that you’ll be the homeowner, there’s nobody else to call; it’s on YOU to fix it or replace it as needed and that costs time and money, sometimes a great deal of it. Lenders don’t ask you if you’ve put back money to cover repairs.

If this is not your first home buying rodeo, then you know the sort of repair expenses I’m talking about. If you’re upgrading to a bigger, more expensive home, keep in mind those repair expenses will get bigger right along with it.

Are you looking for a home that is much larger in square footage than you previously had, possibly because your family is growing? Remember, with larger square footage comes larger utility bills; heating and cooling 1,500sq/ft is a vastly different situation than 3,000+sq/ft. Can you handle going from a $200/month electric bill to $500+/month along with that bigger mortgage payment?

What about retirement savings? Nope, they don’t ask about that. Why not? Because it would reduce the size of the mortgage they put you in. Retirement is your concern, not theirs.

How about other things like braces for the kids, saving up for a replacement vehicle or car repairs? Or how about saving to send your kids to college? Nope, those aren’t on the checklist for a mortgage lender either since that would, again, reduce the size of the mortgage you can afford.

I could go on with a list like this but hopefully you get the idea. There are many, many more demands on your money than just the mortgage and there are items that have a higher priority than just getting the biggest house you can possibly afford. If you put yourself in a situation where you are “mortgage poor” and have no money left to do anything else, other aspects of your life will suffer for it.

Consider Talking With A Fee-Only Financial Planner Before Buying

It’s always a good idea to get an objective third party to look at your financial picture before you begin shopping for that new home. Why a Fee-Only Financial Planner though? A fee-only planner won’t try to sell you anything; they will take a complete look at your financial life to help you determine what you can REALLY afford by considering all your other goals and financial demands, not just what size mortgage you can qualify for. Remember, life is full of other goals and priorities that need financial resources beyond just the mortgage payment.