Owning the Process… and then Owning Your Home

Buying a home is such an exciting adventure, but it can also be one of the most stressful times of your life. Amidst the paperwork, and house hunting, and sudden immersion into the totally foreign world of mortgages, and realtors, and escrow accounts, and down payments… it can be very overwhelming. I am not promising to be your comprehensive guide through the jungle this week. There are very thick books that have been written on this topic… and I don’t feel like another writing one 🙂 However, I do want to present you with some thoughts that you may not have considered, and help you in preparing your budget so that you are better equipped to navigate the jungle.

As I mentioned last week, Matt and I have a dear friend who is a mortgage broker named David. One of the first questions that he asks his clients who have come to him for a loan is, “Based upon your budget – what mortgage payment do you feel that you can afford?” Now David is not your typical mortgage broker. He will do everything in his power to help you in what you are trying to do, but he will also give some tremendously wise counsel along the way (We love you David). But his question is at the heart of what has fueled our mortgage crisis in America, and it is the primary question that needs to be answered for anyone considering buying a home.

Too many people approach buying a home with the mentality that they will see what the bank will lend them and then decide how much to spend on a home. Well friends, let me just tell you that many of those people are sitting with their houses in foreclosure right now. The bank doesn’t know your finances. It doesn’t know your spending habits, how much you give each month, whether or not your children are in daycare, or private schools. They only look at the big picture of debt ratio, credit scores, and pre-tax income. So just because they are willing to lend you the money does NOT mean that you should borrow that amount.

Only your budget with your specific financial responsibilities, bills, and needs can give you the answer of what kind of payment you can afford. From that answer, you work backward in estimating closing costs, property tax and insurance (your lender should be able to help you with this process) in order to figure out the price range for a home you can afford. But it really should begin with your budget telling you what you can afford rather than the bank telling you what they are willing to lend you.

So tomorrow we are going to look again at setting up your budget, but this time with a specific goal of determining what purchase price you can afford to pay for a home. Again, I just want to reiterate that people go to school to understand all of the in’s and out’s of this process. I am not trying to tell you how to do it all, but I am trying to give you the vital information that you have to have to survive in the housing jungle. The bottom line is, if you want to own a home, you have to take ownership of your finances. Especially when not “owning” your finances means you may not get to own your home for very long.

I’ll see you tomorrow.