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April 17, 2021
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Real Estate & Business

Scott Sheldon
Are you buying too much house?
April 9, 2021

One of the strongest builders of wealth in America is real estate. People can buy a house and literally turn their lives around for the better and over the course of time become extremely wealthy as a result of owning real estate. If you’re going to go broke after you make your mortgage payment each month, you might want to pull back and reconsider what you’re doing.

Don’t bite off more than you can chew.  If a mortgage payment is going to put you in a position where you and your family are not going to be able to plan for the future, save money, plan for the kid’s college education, for example, you’re buying too much house and you need to rethink your priorities. Going broke after you make your mortgage payment each month means having nothing left over for other expenses in your life.  This is a recipe for financial ruin and the reason being is because the mortgage payment is too high in relation to your income. Just because the mortgage company says that you can go buy a 700k house, for example, doesn’t necessarily mean you should.  At the end of the day, you need to put yourself in a position where you can blend the mortgage payment into your cash flow and long-term goals for that property.

That is far more of a prudent real estate strategy than buying a house by the skin of your teeth and hoping for the best. Hope is not a plan. So, let’s say that you can buy a $700k house, but that payment is too high in proportion to your income. Go buy a $500k house for example, $200k less spending power which will lower your payments to about $1,400 a month (it’s about $700 a month for every $100k of purchasing power get a house that’s 1,400 dollars a month less than a mortgage payment), buy that house and sit on it for 5-7 years, and build up some equity. Then later on as your credit, cash flow, income and finances permit, sell that house and then go buy in the neighborhood that you originally were seeking. That’s a prudent strategy. It is much safer, it’s more pragmatic, you feel better about your financial discretion than trying to overspend and buy a house that you can’t afford from the get-go.

Hopefully, the mortgage company has this approach in mind. If the lender says go ahead and buy a $700k house and hope for the best, find a different lender. You need a lender whose philosophy is actually is in alignment with what you are trying to do, has your best interests in mind and not all lenders are created equal. Keep that in mind when you’re getting preapproved and determine whether you should buy a house or should you reconsider the project to better support your family budget.

 

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.