Home Sweet Castle?

I recently heard a comment that 20 years ago doctors bought 3,000 square foot homes and today they are buying 10,000 square foot homes! I know American’s have gotten fatter, but seriously, what are they doing with all of that space? I actually know some people who own a home that approaches 10,000 square feet and the truth is, they just never go upstairs. They live in the living room, kitchen, and their bedroom and the rest of the home is just for show. To me, I can understand that size home if you have a lot of company, but most of these homes are just trophies. It is a totally bizarre concept to me, but it is one that many American’s have bought into, and many of them are in bankruptcy as a result.

But I don’t just see it on the upper end, I see this same symptom in couples just starting out. They want brand new, the biggest they can “afford”, and a lot of them are in trouble as well. Their debt just keeps escalating, and in the current housing market, they are in some deep trouble. They can’t sell their home to get out of the huge payment because nothing is selling, and they are stuck just sinking deeper and deeper into debt. In fact, I recently had a friend comment to me that she couldn’t budget because their expenses were always greater than their income!!! What???? I am so glad I was on the phone, because my facial reaction would not have been discreet. Literally my mouth was hanging open. Fortunately, I managed to pull myself back together and just very kindly reminded her that that is actually exactly what a budget is for. But the shocker is that she lives in a gorgeous home, in a beautiful neighborhood, and from all outward appearances is doing well financially. What in the world is going on?

I honestly think that so much of the current crisis is directly tied to three things: 1)We have bitten off more than we can chew when it comes to our mortgages 2) We are not on a budget 3) We have no idea what we can actually afford to pay for a mortgage or for our lives. As a result, we are maxing out our credit cards, living lives we can’t afford, and praying for a miracle. Well, before you get yourself into the same situation as my friend, I want to talk today about how to figure out what kind of mortgage you can afford.

If you go to visit a bank or mortgage broker, they will typically tell you that “industry standard” is that your mortgage payment should not be more than 28% of your gross income. This is known as your “front end debt-to-income ratio”. Under this “standard” if you are making $3,500.00 a month, they think that you can afford a mortgage payment of or below $980.00 a month. There is also another number that they consider and that is your “back end debt-to-income ratio”. This is your overall debt scenario, in which they will take into account your car payments, credit card payments, other loans, cell phones, etc. Items like insurance and utilities are not included. Most lenders want this number to be below 36% of your gross income. So if you make $3,500.00 a month and you divide it by 36%, you get $1,225.00. So if you add up all of your monthly minimum payments, plus your new house payment, then the lender will want that number to be below $1,225.00. That doesn’t leave a lot of room for debt.

Of course, lenders want to give you the loan, especially if you have good credit and a good job history, so many of them are willing to offer loans that will far exceed this percentage. You may even be able to get a loan as high as 50% of your debt-to-income ratio. However, as I have said before, you should never take a loan based on what they are willing to give you, but rather based on what your budget tells you you can afford.

And here are some things that you need to factor in that your bank and broker will not take into consideration: First of all, are you a giver? No mortgage broker is going to ask you what percentage of your income you give to your local church, charity, or to missions each month, but it has a huge impact on your financial picture. If you are giving 10% of your income away each month then you cannot consider this “livable” income to take into account what size home you can afford. So, right off the top you need to subtract your giving from your monthly salary. If you give 10% (for example 🙂 ) and you earn $3,500.00 a month, then you need to subtract $350 from your gross monthly income. Your income would then be $3,150.00 on which to base your percentages.

Furthermore, if you are committed to saving money then this is a further deduction from your gross monthly income. I have written several blogs on savings that I would love you to read including Small Beginnings , Our European Adventure , Debt vs. Savings , and The Storehouse Blessing , but the bottom line is, if you aren’t saving money, then you are heading for debt. Unexpected expenses happen all the time in life, and if you don’t have a savings plan for those expenses, then they will end up on a credit card and you will end up in a hole. I am passionate about savings, and I just want to plead with you to not cut your savings in order to get into a bigger home. Your savings are such a vital part of enabling your dreams and your dreams for your family. Yes, your savings can help you get into your new home, but you don’t want it to be the last place you ever go because you are so financially strapped into your home.

So if you look realistically at these factors, you can see that this can have a large impact on what size mortgage you can “afford” to carry. Many Christians have really struggled in particular with the aspect of giving because there just never seems to be any money left over after bills. It is so wonderful to be a giver, but you need to be practical about what affect your giving will have on the size home that you can buy. Now, I know that the Lord is so incredibly gracious, and this is the moment when I feel like everyone wants to bust out with “God will make a way where there seems to be no way”, and yes, He loves to bless His children, but God is also really smart with finances… He is the beginning of ALL wisdom after all.

So many times what we want God to do for us is actually to provide for us to get OUR way, rather than His. He loves to bless His kids, but sometimes that means getting into a smaller, more affordable starter home that you can prosper in and eventually outgrow, rather than a large dream home that is going to overwhelm your finances and leave you constantly in need of a “miracle”. Many times it is our desires that lead us rather than the Holy Spirit, and we need to realize that although God wants only good for our lives, His prosperity is so much more than a bigger home. In fact, if living in a smaller home means that you work less and get to spend more time with your family, or that you have more surplus income to take vacations, or to give more, or be a blessing to your kids, then I think that is absolutely God’s blessing on you. Don’t let the size of your house be the only measure of you…. Love big, embrace life, and be grateful for what you have, and for what you can afford. Don’t despise small beginnings, especially in the size of your first home. Life is so much bigger than the size of your house, but as so many have discovered, a house that is too big can actually keep you from getting to live the rest of your life.

But even though the percentages that I have talked about today are the numbers that a lender will present to you, the best measure of what size loan you can afford is always going to be based on your complete budget. The debt-to-income ratios may govern their decisions in giving you the loan, but your budget should always govern what size of loan you are willing to commit to. And let me just add one more thing… if you can’t afford a large house, don’t let your realtor even take you there. They always start out with the best so that you are ruined for anything else. Know your budget and let it be the guide even as you search for your home sweet home. Don’t get seduced into loving a home you can’t afford and sacrifice your peace and your financial future for a bigger bathroom, or an upstairs you never visit 🙂

God bless.