How did you come up with your house-hunting price range?
We have a finite amount of money available for a down payment. It’s enough that we can put 20% down on a decent house. We do not want to put less than 20% down because we want to avoid PMI. I’m not sure if lenders do 80/10/5 loans (or some variation) anymore, and I’m not really interested in one anyway.
We would like to get a 15-year mortgage and thankfully the interest rates are low enough now that we should be able to do so. A year or two ago when rates were in the 5s and 6s, we wouldn’t be able to do that at this price point.
We thought about what we wanted our monthly payment to be. We still want to be able to set aside money each paycheck for general savings, college savings, vacations, etc. We don’t want to be house poor, ya know?
So all of those factors pointed us to one general top-dollar amount and we are considering houses around that number but also some substantially cheaper, too.
I called a lender today to get pre-qualified. A pre-qualification is much more relaxed than a pre-approval. The lender is taking the info I tell him as truth, and isn’t doing any fact-checking. He’ll do the verification for the pre-approval later.
The guy acted surprised when I told him we didn’t have any debt. It’s kind of a fun thing to tell a lender you’re on the Dave Ramsey plan!
I told him how much I wanted to bring to closing, and how much I thought we wanted to spend on a house. He told me that would work for them.
I could tell he selected his words carefully here, but he also hinted that we could go much higher if we wanted. I told him to stop right there — that I knew how much was comfortable for us and I wasn’t interested in spending more, and Dave Ramsey-Dave Ramsey-Dave Ramsey.
Apparently lenders still think it’s ok to approve someone to take on a 45% debt-to-income load. That is nuts.
Anyway, I think it’s best to figure out how much you can afford by carefully considering your budget and adding a huge buffer. As Karen recently pointed out on her blog, buying a house is much more than the house payment!
Lastly, one of Shane’s coworkers said we should look a little above our price range because we can probably talk people down to our desired price point. I think that’s a dangerous idea. I wouldn’t want to get emotionally attached to a too-expensive house, have them stay firm with their price, and have to make a decision whether to walk or pay more. I will try and leave my emotions out of this as best as I can, but I’ve never bought a house before and I don’t fully trust myself.
Run the numbers and figure out what works for you. Then, tell a lender your intentions. Don’t let the lender tell you what you can afford if it is more than what you want to pay. THEY aren’t the ones who will have to live with the payment.