The Mortgage Broker Doesn’t Know What You Can Afford

iStock_000000479692XSmallIf you’ve ever thought about the reasons why the U.S. is in the middle of a mortgage crisis right now, you’ve probably come up with a variety of reasons.

Some insist that it was the lax loan guidelines, some say sub-prime loans, others say adjustable rate mortgages, while others blame predatory lenders.

But one underlying reason is that many people took on loan payments that they simply could not afford. Granted, some became unable to pay because the domino effect of the mortgage crisis either rendered them unemployed or they had their wages cut.

But others couldn’t afford both the payments and their preferred lifestyle from the very first.

Why, then, did they get the loans? Because their mortgage lender told them they could afford it, and they didn’t stop to think about the sacrifices they might have to make in order to meet that monthly payment.

If you stop to think about it, a mortgage lender can’t possibly know what you really can afford. He or she can tell you what you cannot afford, if your debt to income ratios don’t fit the guidelines. But since you only tell the lender about obligations that will show up on your credit report, there could be a lot of expense in your life that the lender knows nothing about.

So listen to what the mortgage lender tells you, then take those figures and add in the expenses for things that bring joy to your life. Look at your budget yourself and decide if you really want to spend 28% of your pre-tax income on a home.

If it means you have to give up going out to dinner and a movie on Friday night, or drop the season pass to the ski hill or the golf course, is that OK with you? If it means you’ll have to keep driving your old car for a few more years, will you be happy?

You should aim for a mortgage payment that you can pay comfortably – not one that means you’ll give up everything else you enjoy in life, and not one that means you’ll be unable to put any money into a savings account.

If you use your own common sense and buy only what you can afford with the income you make today, you’ll be in no danger of losing your home to this crisis. And…you’ll be extremely happy a few years from now when your income has gone up.

Once you’ve decided on your maximum payment, your mortgage lender can help you determine the top dollar you should pay for a home after considering the principal, interest, taxes, insurance, and mortgage insurance.

Author: Mike Clover your resource for free credit reports, credit cards, loans, and ground breaking credit news.

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