I have the awesome pleasure of working with a number of new, first time home buyers as well as experienced home owners who currently own homes in Minnesota. I teach first time home buyers and current home owners about market trends, mortgage eligibility, credit standards and special programs available to first time home buyers and current home owners to assist with buying their first home, and refinancing or buying a new home each month during our Free First Time Home Buyer Class and Right Move Class for Current Home Owners.
During these one-on-one or group meetings, I jokingly address comfort level vs. qualifying ability. I talk about the irrelevance of the amount of your pre-approval as it doesn’t take into consideration a number of different things you may want or need to pay for on a monthly basis. I’m personally fond of Ramen – on occasion – but certainly don’t want to put people in a position where that’s all they can afford to eat. I’m grateful to be able to say that the trend has shifted and most people come in with a conservative approach to home ownership today vs. just a few years back when everyone “had to have” everything they wanted when buying their homes even if it meant being completely house poor.
My vision in providing home loan financing is to be certain that I am helping people to work toward three very specific goals – Strength, Security and Stability as they become home owners or continue on in home ownership. One of the ways we can be sure to accomplish this is to be certain that you will be comfortable with the monthly payment and other expenses long-term.
Whether you are a first time home buyer or a home owner looking to purchase a new home, there are a few simple exercises that I believe are fruitful for anyone to go through when looking at financing a new home:
1) Track your monthly expenses in a budget. Yes, I know budget is a horrible word that nobody likes, but it’s not that tough in light of online banking and other tools available to us today at nearly any banking institution. We need to know where we spend our money before we know how much we could be comfortable paying or “giving up” for a new home. It’s amazing how much money we “find” when we pay attention to what we spend and make minor adjustments in our spending.
2) If you’re a first time home buyer, be sure to consider full utilities and home maintenance into your budget for buying a home. Most renters will need to account for gas, increased electric, garbage and water bills and should be comfortable setting aside at least 1% of the homes value for annual maintenance and home repairs.
3) Test yourself – how much can you save? If you’re looking at increasing your monthly housing expense $500|month, can you comfortably set aside $500|month into a savings account and not touch it for a period of at least 3 months?
4) Using #3 as a premise for testing your comfort level, are you also able to continue to save money at the same rate you did previously? i.e. Can you set aside the additional 1% you will likely need for home maintenance and repairs or other short-term, intermediate or long-term goals like vehicles or vehicle repairs, vacations or retirement? If you can’t continue to accumulate savings, you may also be pushing yourself too far.
I know these are very simple tasks, right? However, it’s not uncommon for the first time home buyer to not know or understand what they can truly afford on a monthly basis. A number of first time home buyers today are moving straight from rent-free family living into home ownership and they have managed to save a decent sum of money yet haven’t thought about the long-term ability to continue that or, have been able to spend very freely because they weren’t obligated to pay a large monthly rental expense. It’s also not uncommon for couples who are purchasing a home together and moving in for the first time to come into my office with completely different ideas of their comfort levels. If you are in this situation, I encourage you to take the test together and you will very likely come to the same, agreeable conclusion on comfort level for a new house payment.
Your comfort level and overall assessment of your short-term, intermediate and long-term financial goals will equate to long-term strength, stability and security in home ownership! We’re here to help you achieve all three!
If you are a first time home buyer and you’re looking for more education about buying your first home in today’s mortgage and real estate market, our next Free First Time Home Buyer Class is:
Thursday, January 20th from 6:30-8PM – Register Online for the First Time Home Buyer Class
If you are a current home owners and you’re interested in learning more about today’s market for refinancing, selling your current home, or buying new, our next Right Move Class for Current Home Owners is:
Saturday, January 22nd from 10-11:30AM – Register Online for the Right Move Home Owner Class
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