Thursday, January 12, 2012

Chronicles of a First Time Homebuyer: Know Your Limits

Today's Tip:

Know Your (Financial) Limits

In our last First Time Homebuyers post, we discussed knowing what you want and making sure your realtor does too. Being on the same page, both with your realtor and with yourself, it such an important home buying aspect.  It will save you a lot of heartache in the long run!

Today we will talk about another important aspect, which goes hand-in-hand with our previous post: Knowing your limits.

We all know the economy is in a bad place, and part of the reason it declined is due in part to real estate.  People were buying bigger and better, despite not being able to afford bigger and better. So they stretched their credit, their wishes, and then the foreclosures started popping up. 

One thing I really appreciate about our journey is that after our initial chat with the realtor, my husband and I were directed to speak to a mortgage company.  We crunched numbers, down to the penny, and had a solid grasp on what our absolute limits were.  We knew we could not go above and beyond a certain amount (partially because we couldn't afford it, partially because no bank would [thankfully] approve loans above a certain amount).

Now, with an absolute range in mind and a mortgage pre-approval in hand, we knew exactly what houses we could (and couldn't) look at. We knew what bids we could put in.  And even though a particular house might have been approved by a bank, my husband and I knew OUR limits. We knew what we could and couldn't afford (or, rather, what we wanted to afford).  It really helped narrow down our search. 

We also had a solid concept of our present financials. We were clear on how much actual money we had to put towards our offer.  We did not kid ourselves with what savings we would have after we bought the house (for unexpecteds, for home repairs, etc).  We knew without a renovation loan, it would not be prudent to look at major fixer-uppers (even if they were really inexpensive) because we did not have the actual funds in hand to put towards the repairs.  We knew we could deal to buy appliances if it came down to it (which it did - a refrigerator, washer and dryer).

Today's Takeaway: Know your financial limits by meeting with a mortgage broker or bank before you start actually looking at homes. Know your current money and asset situation inside and out, so you can feel comfortable with what you can (or cannot) take on in possible renovations.  And even if the perfect house is just a few thousand dollars outside of your range, check yourself by asking: Am I REALLY able to afford this on a monthly basis?  

So I would encourage you to Dream Big as you search for a home.  Make sure you are on the same page about those dreams.  But then anchor those dreams with a visit to your mortgage broker or bank, so those dreams can become an affordable reality.