Balancing What the Bank Says You Can Afford and What You Can Really Afford

By
Real Estate Services with Think Glink Media

When determining how much to spend on a home, your bank may have a different idea about your budget than you.

balancing what the bank says you can afford and what you can actually afford

A mortgage lender might approve you for one amount, based on a conventional debt-to-income ratio, while you'll get more money if you go for an FHA loan with higher DTI limits or for an FHA 203K loan, which qualifies you for up to 125 percent of the sales price if work needs to be done to bring the property up to code.

At the same time, it might be that none of those amounts is what you're comfortable spending each month on your mortgage payment, real estate property taxes, and homeowner's insurance premium.

Homebuyers often forget that buying a home means you take on not only monthly mortgage, tax, and insurance payments, but also assessments (for a condo or co-op) and ongoing maintenance costs, which can add up.

Figuring out how much you can afford to spend on a house means thinking about your lifestyle and your debts, not just what the bank says you can afford.

 

To find out more about how to determine what you can really spend on a home, check out my blog post on the Equifax Personal Finance blog: http://real-estate.equifax.com/2010/11/balancing-what-bank-says-you-can-afford.html

What is your strategy for figuring out a budget for buying a home?

 

 

 

Ilyce Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com, The Equifax Personal Finance Blogand CBS Moneywatch She is Chief Content Strategist at RealtyJoin.com, a community for real estate investor

 

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Re-Bloggged 3 times:

Re-Blogged By Re-Blogged At
  1. Stephanie McCarty 11/30/2010 11:09 AM
  2. Michael Jacobs 11/30/2010 04:05 PM
  3. Dawn Maloney 12/14/2010 02:47 PM
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Topic:
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Location:
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1st Time Buyers
Advice for Buyers
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Tags:
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budget

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Rainmaker
496,105
Patricia Aulson
Realtor - Portsmouth NH Homes-Hampton NH Homes
PRUDENTIAL VERANI REALTY- Portsmouth NH Real Estate

Smart buyers don't want to spend the max of what "the bank " says they can afford. They'll look at those homes that "they know they can afford"  I'm always impressed with these smart people.  The banks and lending institutions were telling people they could afford more than what they really could afford.  That's part of why we are all in this lousy economy today.

Patricia/Seacoast NH & ME

November 30, 2010 09:04 PM
Rainmaker
558,639
Chris Olsen
Broker Owner Cleveland Ohio Real Estate
Olsen Ziegler Realty

Hi Ilyce -- I really try to counsel first-time home buyers to really know their income and expenses in great detail, using a spreadsheet or some other program and track where their money goes, and to really budget, know that there may be an additional 1-2% of the purchase price in maintenance costs per year, budgeting for replacement reserves of major systems, etc. As well as budgeting for change in lifestyle, potential relocation, job loss, school, retirement, etc., and to live under their means so they aren't stressed.  It's a sobering conversation but an important one.

November 30, 2010 09:56 PM
Rainmaker
206,551
Bernadine Hunter
SFR, ACRE
Keller Williams Greater Columbus Realty

I also caution buyers to buy below what the bank says they can affort and try to only show them houses that fit that criteria.

December 01, 2010 07:41 AM
Rainmaker
362,582
Ilyce Glink
Best-selling author, award-winning TV/radio host.
Think Glink Media

Thank you all for your comments. I think planning a budget before looking at houses (and sticking to the budget!) is one of the most important things a buyer can do. 

 

As we all see from the mess of the housing industry right now, the size of the loan the bank is willing to give you is not always the size of loan your budget can afford.

 

Thanks for reading, and please visit and share the full blog on the Equifax Personal Finance Blog

December 01, 2010 05:52 PM
Rainmaker
574,640
Valerie Zinger
Home Organizer
House Proud Ottawa-Ontario-Canada

Ilyce:  This is an nice short post with a very strong message.  Affordability is not just the mortgage payment.  Home or condo  ownership has all kinds of other costs that you don't have at mom's or at the all included rental.  Thanks. 

December 02, 2010 05:03 PM
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Rainmaker
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Ilyce Glink

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