June 23rd, 2017 5:39 AM by Jackie A. Graves, President
you’re in the market for a new home, it can be tempting to stretch your budget
in order to buy a place that has all the features you want. But doing so could
cause money trouble for you and your family.
Holbrook, director of personal markets at Northwestern Mutual, says homebuyers
can get into trouble by borrowing too much. “Some people have unrealistic
expectations about what they can afford,” she said. “They have a vision in
their heads of their dream home, and they don’t understand all the hidden costs
of homeownership that they need to factor into
believes it’s critical that buyers spend time figuring out what they can truly
afford to make sure that they don’t end up in over their heads. “When you
become cash strapped by borrowing too much, it can make people feel trapped
since they often have to cut back on hobbies, travel or other things that
matter to them.
are some things to consider before making an offer on your dream house:
to Determine the True Costs of Homeownership
Holbrook was shopping for her first home, she calculated the cost of her
mortgage and assumed that the expense of owning a home would be close to the
amount she was already paying in rent. But once she added in all the other
expenses involved in homeownership, the monthly cost nearly doubled.
homeowners don’t always understand the hidden costs that come along with owning
a home,” said Holbrook. “They don’t factor in things like home repairs,
maintenance, homeowners’ association or condo fees, utilities, property taxes,
private mortgage insurance, home insurance and all sorts of other costs.”
taking these costs into account meant that Holbrook might have taken on a
mortgage that would have significantly stretched her budget. That’s why she
believes it’s critical that you sit down with a calculator and add up all the
costs in order to get a true idea of how much homeownership will cost you.
Amount You’re Approved to Borrow May Not Be What You Can Afford
lot of people mistakenly believe that if they’re approved for a certain
mortgage amount, then they can afford to borrow it. But that’s not true, says
a bank may feel comfortable lending you might be very different from what you
can actually afford,” she said. “Lenders don’t know all of your expenses.
They’re looking only at the types of expenses that are going to show up in your
credit report. They don’t know what kind of daycare expenses you have, if
you’re paying private school tuition or whether you’re supporting aging
also don’t know about your other goals or financial priorities, like whether
you want to start a business in a few years or you’re saving to send your kids
to college. “You’re the one that has to make the mortgage payments,” Holbrook
said. “You have to make sure you feel comfortable with those payments.”
much you should borrow on your home is an individual choice. You might make the
same amount as your friend; but if you have different expenses, goals or
priorities, then the ideal amount to borrow could be completely different.
common advice, like spending no more than 25 to 30 percent of net income on
housing costs, might not apply to you if it doesn’t fit with your current and
future lifestyle and goals. Since buying a home is a long-term investment, make
sure that the costs will fit your financial situation in 10 or even 30 years’
you’re unsure how much you can afford, Holbrook suggests that you sit down with
a financial professional who can go over your financial situation and help
determine how much to spend.
Confident in Your Choice
for and buying a home is often a stressful and busy time, but taking the time
to think about mortgage affordability and ensuring that you don’t end up
borrowing too much will set your family up for future success.
house poor,” said Holbrook, “can lead to a great deal of conflict in the
household and the inability to do many things as a family that you enjoy.” But
when people borrow the right amount, they end up feeling confident rather than
stressed, according to Holbrook. “They feel assured that they can achieve all
their financial goals – not just their goal of homeownership,” she said.
The Northwestern MutualVoice Team is a group of
professionals who share insights and opinions from experts and industry leaders
across the enterprise. Our vision is to inspire others to take action and plan
for their financial future through topics ranging from financial planning,
retirement planning and distribution strategies, wealth accumulation and
preservation, to leadership, philanthropy and innovation.
view the original article click here