Can I afford this house?

Asking your mortgage broker how much you qualify for on a home mortgage is like asking a fox to count how many chickens are in your chicken coop. The Millionaire Next Door, Thomas J. Stanley and William D. Danko

We bought our first home in 2004, 4 months before our oldest was born. 2004 was leading up to the housing crisis that rolled to a boil in 2008. This house was an emotional purchase. The guy we bought it from fixed and flipped houses while he lived in them. This house was so stylish, it had a trex deck with a fire pit, and a built-in BBQ. It had a hot-tub, a fireplace in the master bedroom, a clawfoot tub in the bathroom, designer tile, hardwood floors, and a huge shower with multiple shower heads. We liked it a lot and it was expensive. The bank was willing to lend us way more money than we could afford. I knew very little about finances at the time, and I was still shocked at what the bank was suggesting we could afford as our monthly payment.

Since then, I’ve learned a few things: You have to consider whether you will be able to maintain the property yourself, or if you have the income to pay someone else to take care of it. Here are a couple of questions to consider when looking at buying your first, or subsequent homes:

• Make sure you can put away 5-10% of the mortgage every month for repairs. Home repairs are inevitable, and it’s always better to be prepared for those costs. 
• Look at the roof line, are you going to be able to climb up there and clean the gutters? Are you going to have to buy a new ladder in order to do that?
• How big is the yard, do you have the time and desire to care for the yard?
• When it comes time to paint, will you be able to do it yourself, or will you have to hire out?

Don’t get into a mortgage payment that takes all your resources. Your mortgage should ideally be around or less than 30% of your net income in order for you to live comfortably, and not always be “house poor.” The banks want the loan, they may be nice and smiley, but their end goal is to secure the loan. The logic bankers sell for getting buyers into a mortgage payment they can’t afford is: “you’ll increase your earnings and be able to afford the payment in the future”. What a bunch of crap!! 

Stand up for yourself, don’t let a mortgage broker talk you into more than you can afford. Rent while you save. Buy what you can afford, and enjoy your apartment, or smaller house, and don’t compare yourself to anyone else, or where you think you should be.