We have all had questions about mortgages at one point or another and getting the answers we need is not always easy. But Tom Champion, who has been a mortgage loan originator and now works as a regional manager for Mortgage Loan Inspection, took some time in an interview with the Baltimore Sun to answer some pressing questions. Here are some highlights of that interview with a paraphrasing of the questions asked and the answers given.
What is the problem with a family making about $63,000 a year financing a home that costs $226,500? Is this a realistic mortgage payment for such a family?
According to Tom Champion, there is a problem with simply being able to afford a mortgage payment. In this case, the family would be approved for the loan according to FHA guidelines. However, after reviewing their budget, they would only have about $100 left over at the end of the month and they would not be able to contribute to any savings plans, college funds or retirement accounts. If someone gets sick or misses a paycheck, the family could be on the road to financial disaster.
Mortgage loan lenders are not going to be concerned about how much you have left over after making the mortgage payment. They will tell you that you can afford the payment but they will not often tell you that you can barely afford it. When taking out a mortgage loan, always separate yourself from the emotion of the purchase and make a realistic decision based on your budget. Tom calls people who simply “afford” their mortgage payment “house poor.”
How can a person or family determine how much mortgage they can comfortably and realistically afford?
Before applying for a mortgage loan, a family should always come up with a written budget. This budget should have a list of your expenses and your income. Include all of your expenses throughout the year, including your property taxes, insurance payments and more. Once you have this, adjust the data to include the new house payment, the new property taxes, the new insurance and any other expenses for the new home. You should even consider how much farther (or closer) you will be to your job and the different gas expenses.
Once you have all of this, you have a bottom line for what you can afford and still have money left over for living expenses, savings and other necessities. You can also see if any lifestyle changes are needed in order to afford the mortgage payments comfortably.
Champion urges home buyers to take their mortgage loan seriously. You are committing to a 30-year debt in most cases so it’s not something you can take lightly. For most people, buying a home will be the largest investment they will ever make. Allow your logic and rational side to make the decision rather than your emotional side to ensure a well-informed decision.