Is the fear of being “House Poor” holding you back from making the plunge towards homeownership? Living paycheck to paycheck only to pay your mortgage would sound like a nightmare to anyone, which is why every homebuyer should really think about how much they can afford to spend on a home and live comfortably.
A person’s first step when they are ready to look for a house should be to reach out to a mortgage bank to get preapproved for a home loan, however this does not necessarily mean that is the price range that you can afford and live ease-fully. Ralph DiBugnara, industry expert at Home Qualified, examined and broke down the difference between these two seemingly similar words to clear up the confusion and prevent more people from living pay check to pay check.
PREAPPROVED
Once you submit a mortgage application to a mortgage bank, a loan officer will review a few key financials to determine how much the bank will lend you.
- Gross Income: This is your income before your taxes are taken out
- Credit Report: Not only will they review your credit score, but also all minimum monthly payments on credit cards, auto loans as well as student loans, and anything else with a line of credit and monthly payment.
- Assets: The lender will request bank statements to show your ability to cover closing costs, down payment and asset reserves.
So now you know how much you qualify for but what can you afford?
A bank will not consider expenses such as utility bills, cell phone bills, cable and internet bills, auto insurance payments, and school or daily household expenses. The key is to sit down and create a budget while breaking down every monthly expense you have.
You want to be comfortable with your payment and not working to just pay your mortgage. Keep in mind a mortgage should be a growing long-term investment that you are contributing to monthly, but at the same time it must be affordable, so you can pay for the rest of your lifestyle, be happy, and not strapped for cash.
If you have any more questions, please reach out to us here at Home Qualified!