Most people get it backwards. They shop for a home, THEN, they try to structure the financing for it. They make the emotional decision of buying the home of their dreams, THEN, try to apply logic in how they pay for it. Many even go “online” and play with what is affordable by underwriting standards without TRULY considering their future.
I am always fascinated by mortgage underwriting “standards” when they don’t even take into account some very large variables that affect an applicant’s cash flow, and thereby, their ability to repay the loan or maintain a lifestyle they want:
- Are you single or a family of six? Costs for food and clothing alone are very different.
- Do you live in a state that requires State Income Tax or not? Another significant part of the equation.
- How often do you like to eat out or vacation? Are you willing to sacrifice these things for a bigger or nicer home?
Falling in love with a home without considering the REAL impact on your lifestyle is a recipe for unhappiness….either in re-adjusting to a “lesser” home or disappointment over the lack of vacations or nights out.
My advice is to first work on your financing. Go the logic route. Find out what you can afford from a lender’s underwriting perspective, but then, spend some time considering the the cash flow realities of your choice. Work with your loan officer to make wise choices.
Additionally, your loan officer should be advising you on ways to properly represent and transfer your assets, how to explain and document your income, as well as, assisting you in methods to get your optimal credit score. This counsel can be invaluable in smoothing out some of the bumps in the mortgage process, besides giving you the best chance to get the most aggressive pricing available.
To me, the choice is crystal clear…the mortgage before the house!
By Dean Hartman on October 20, 2011
The KCM Blog