October 30, 2014
Your Income and Your Mortgage - Getting the Right Balance
When you’re ready to buy a new home, one of the first steps you’ll need to take is finding a lender to pre-qualify you for a loan. What exactly does that mean? And how does the lender come up with the amount that they give you? We spoke with Betsy Saxon, Mortgage Loan Officer for First Bank Mortgage in Pooler, GA, to learn more about what happens when you are pre-qualified for a loan, and what you need to think about once you have that all-important number in hand. Ms. Saxon has pre-qualified hundreds of home buyers for loans in the Savannah, GA area and has some interesting points to consider when you’re getting ready to select the home where you will live. “One of the first things you need to think about is where you want to get your loan,” she says. “So many people today turn to huge corporate lenders – what I call the 1-800 lenders. You call a toll-free line or log on to the Internet, give them some information, and they give you the amount they are willing to loan. However, the loan officers that work for these companies deal with customers in volume. They aren’t paid to ask the difficult questions that can make a big difference in the amount of money your will qualify for. They follow the script and don’t really analyze your financial situation as carefully as a smaller, local lender will.” What are some of these “difficult questions”? They aren’t really tough to answer; they’re just things you may not think about off the top of your head. They are, however, crucial to determining how much you should pay every month for your mortgage. Sometimes you don’t think about things that are important in your life that will affect your budget, and therefore, how much you can spend on housing each month. “One of the things large lenders don’t take into consideration when they’re pre-qualifying buyers is taxes,” says Ms. Saxon. “This is a big thing. If you’re buying an existing home, you can check what taxes were assessed on the home last year and get a good idea of what they will be. However, when you’re buying new construction, this lot was never taxed as a home before. There’s no background there to help you figure out what the taxes will be. Sometimes, it can be quite a surprising number. And there are a few items in a quote that are not legally binding – they can change without penalty. The amount of taxes to be paid is one of those items.” Ms. Saxon suggests consulting a closing attorney to give you a good estimate of the tax requirements on a property before contracting to buy the home. She also urges you to go into detail with your lender when it comes to some of the other payments you make every month. Most of these monthly deductions aren’t considered by larger lenders. Child support or alimony payments might be taken out of your check immediately due to a court order, or you may be sending them on your own. If the latter is true, they won’t be on the radar of your lender, and they won’t take them into account when they are calculating how much they can lend to you. The same is true of major life events that are on the horizon. Do you need to buy a new car? Are you going to get married? Are you planning to add to your family? If so, are you or your spouse planning on working part-time or staying home with the children? Will you need to pay tuition for yourself, your spouse or your children? Are you getting ready to change jobs or retire? You have to think about these things in the long term, because your mortgage is designed to be paid back over many years. Events like these will have a serious impact on the amount of disposable income you will have each month, and need to be considered before you buy a home. Some people also have significant unreimbursed employee expenses from work. These also need to be taken into account, as they will reduce the amount of liquid cash you will have to devote to your new mortgage. And last, but not least, you need to consider your lifestyle. Do you travel frequently? Do you spend a lot of money on meals out or entertainment? Are these things important to you, and will you continue to do them regularly once you buy a house? Ms. Saxon points out that many people naturally start spending more time at home once they’ve bought a house. Instead of eating out, they cook more of their own meals, or invite friends in for an evening’s entertainment instead of going out. However, if you enjoy an active social life, be sure to set aside some money each month to cover the expense. “The most important thing you need to remember is that the amount of payment that you will qualify for isn’t always the amount you will want to pay, or be able to pay,” Ms. Saxon emphasizes. “Don’t plan to use every cent you qualify for – use only what you can afford to pay back.” If you need more information on the pre-qualification process, don’t hesitate to call Betsy Saxon at 912-663-2510. She’s pre-qualified hundreds of buyers for a loan, and is happy to provide an incredible amount of free information to anyone who requests it!