Whenever a client comes in to see me and we get to the part about purchase price I ask them if they had a certain price point in mind. Most people do so I plug in that number and we proceed. Without fail at the end of each of these appointments, as the client stands up to leave, they pause. They turn to me and say “hey just for curiosity sake, what’s the maximum number I could go up to?”
This question scares me every time, I know that the government guidelines say this individual can afford it but when we talk about their life and bills and debt most of them actually can’t. When it comes to purchase price of a home I recommend determining it by identifying 3 factors:
1) Personal Budget. If you are currently renting for $1200/month and most of the money disappears by the end of the month I wouldn’t recommend suddenly jumping to a mortgage of $2500/month. We all want the big fancy house that makes us feel like an adult but we also want to be able to afford groceries, vehicle repairs, and a vacation every now and then.
2) Savings. As per the first point, we can plan all we want but regardless life is still going to happen. I don’t know about you but I did not schedule in my broken arm a few years ago, my husband’s surprise dental surgery, or home repairs; nonetheless these things all happened. If you spend all your savings on your down payment it won’t take many of these surprise expenses to make your within-the-guidelines-purchase into a we-can’t-afford-this-regret.
3) Future plans. Right now it might just be you or you and a significant other buying a house together. You work full time, make good income and can afford pretty much everything you want including your new house. Until you decide to go back to school, or start a business, or a family. Just like that this very affordable mortgage has your one income house in a pinch. Just have a discussion or determine for yourself what your 5 year goals look like and if they are still feasible with a mortgage added into the equation.
As a Mortgage Agent and a self-proclaimed homeownership advocate I completely believe in people buying homes and building equity. As someone who advocates for personal finance and financial freedom I also want their money to be working for them. It’s a delicate balance, but anyone who has ever been house poor will assure you that it’s not worth it.
If you are looking at buying a home and aren’t sure what purchase price you should be at, let me know. We can sit down and make a customized plan that works for you both now and moving forward.