When I meet with buyers for the first time, I always ask them what they’re most concerned about regarding the home buying process. I’ve had a wide variety of responses over the years, but by far, the most common response is the fear of over-extending. And let’s face it, just a few years ago at the height of our most recent real estate boom, many people did just that. Home prices were high but mortgage loans were relatively easy to obtain, and today, many home owners are struggling to keep up.
Even in this economy, when home prices have stabilized AND banks are being more selective than ever in their loan approvals, it is possible to bite off more than you can chew. Just because you’ve been pre-approved for a $400,000 mortgage doesn’t mean you can afford the resulting monthly payment – not when you factor in property taxes, insurance, utilities, groceries, other debts, and the many lifestyle factors that can create a significant drain on one’s income. It is very important to examine every facet of your spending, job security, and lifestyle goals before making a home purchase that could leave you “house poor” or worse – at risk of one day losing your home and your investment in it.
If you’re considering a new home purchase, download my monthly expenses worksheet and use it to examine your spending. Be honest – make sure every non-negotiable expenditure (car payments, minimum credit card payments, etc.) is listed accurately. For those expenditures that vary (utilities, auto fuel and repairs, etc.), make the best estimates you can. And for those that may be considered optional (dining out, vacation, etc.), consider your life goals and budget accordingly. When you have put some time and effort into completing this worksheet, you will have a better understanding of your financial situation and whether or not you can afford the home of your dreams. Then, if necessary, you can seek the assistance of a financial planner to help you adjust your spending and saving to meet your goals.
Download my Monthly Expenses Worksheet here.