We Put The Real In Real Estate

Believe it or not, most home buyers never even consider their budget.   Most home buyers do what we did with the advice my Mother gave me.  Take your income and multiply by 3 and that’s the home you could buy.  So if you make $50K you could reasonable afford a $150,000 home.  There’s different variations to this “calculation” but at the end of the day it’s wrong.

Another way that home buyers “decide” what their price range is, by calling a lender.  A few years ago, if you had a job you could get as much money as you wanted almost.  Now they definitely look alot deeper, but they still give you “WHAT YOU QUALIFY FOR”, not what you can afford.  Affordability is different than qualifying.

We recommend creating a budget.  If everyone did it Dave Ramsey’s way then  I would be blessed indeed (referring to 20% down on home purchase).

Let’s just get started. These are some really basic steps, but should help if you’ve never done this before.

1. Take your take home pay (not your gross) – It’s the CASH you get from your job.  (We’ll use $4,000 as our number for easy math) $4,000
2. Minus any credit card or car payments (Car -$400 /mo Credit Card $200 /mo )  $3,400
3. Minus your utility payments if any – this is tricky because a home will likely be more than your apartment or if you’re living with the folks.  We’ll go ultra conservative ($400 / mo)  $3,000
4. Minus any savings? ($500 / mo) $2,500
5. Minus any Tithe? ($400 /mo) $2,100
6. Minus all the food you might want to eat? PB&J or are you going out? ($600 – family of 3 does this easily)  $1,500
7. Minus Gas and anything else miscellaneous ($300 /mo) $1,200

So in this example you’re left with $1,200 for a home.  It’s this number that you should take to a loan officer, not WHAT YOU QUALIFY FOR.  Then they’ll tell you what $1,200 a month buys.  With today’s low 5% interest rates you’re looking at a few thousand over $175,000 if this scenario fits you.

In the next few days, I’ll be posting videos from loan officers and a great financial planner to go into more depth!

Thanks for reading.

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