We are still looking for a house. We have stepped up our efforts and we are meeting with banks to find the best rate and get pre-qualified. So far, we have met with two banks. One is the bank where we do our banking. We met with a different bank yesterday and will pick one more before deciding.
The mortgage process has changed since Husband and I bought our first house in 1993. Back then, the bank looked at 20% of your net income, along with your debt to income ratio in determining how much house you can afford. Now, it's 40% of your gross, along with your debt to income ratio. Well, Husband and I have no debt, which is good. According to Bank #2, we can "afford" a house of $700K with a mortgage of $5K.
SWEET MERCIFUL CRAP THAT'S A LOT OF MONEY!
OK, first of all, we don't want or need a $700K house with a $5K mortgage. That means that neither one of us could get sick, unemployed or die. Second, it is going to cost an obscene amount of money to heat, cool and insurance a house that size. Finally, we so don't need a house that is merely just something to show off to everyone. I mean seriously, I don't need that much house. I don't want a house that is so big that I can't clean it myself!
Thankfully, Bank #2 Guy thinks like us. He was just showing us how sadly, the industry has not learned their lesson from the housing crisis. Sure, you could afford that much, but why? Why put yourself in a situation where you have to work to afford something that you could afford in the first place?
Sigh.
It was quite an eye-opener and, quite honestly, scary. Granted banks have become stricter with credit. Basically, they want a FICO score of 740 or better. But, it seems like some are willing to look the other way, just to get someone in the door. It's not about being reasonable with what you ca afford anymore.
I am so glad that Husband and I are of the philosphy that you live within your means, in the sense that anything could happen. We base what we can afford on what would happen if one of us lost our job. Can we function? Can we make the necessary adjustments? Nothing is secure theses days, so do we have enough money piled away that we can continue to enjoy our life with minor adjustments?
It's the smart way to live.
About Me
- Seeking Solace
- I am a college professor who is fumbling through the chaos of academia, rheumatoid arthritis, working on my PhD and just being a 40 something woman. I used to be a lawyer, which made me a snarky little person. I have a wonderful Husband and a German Shepherd named Junior. They help keep me sane.
Paws to Consider
My Sister's Keeper
6 comments:
Good for you!!
It's nice to know that you'll be able to afford the house you want -- both because you've been smart with money AND because you don't want a huge place.
After Hubby was the house-sitter for a HUGE place, we came to the conclusion that we don't want a big place -- a nice place, that works for us is enough. I don't see the sense in a couple with a dog having a 5 bed, 6 bath McMansion, even if you can "afford" it.
ps -- Warren Buffet lives in a pretty modest home in central Omaha. It's the same home he owned when he started Birkshire Hathaway. His philosophy is that it suits his needs, why move? Thinking like Warren isn't a bad money move:).
I like the way you two think (because it's the way we do, too). We bought our nice-but-modest older house in '91, paid it off in 2005, and will live here until we retire, when we'll move far, far away. We could "afford" a fancier home but instead, can sleep at night and take vacations. No regrets here.
You're definitely being smart, smarter than the banks you're dealing with. It seems they haven't learned their lesson. Fortunately, a lot of people - though not all, of course - have learned theirs too. It's one of the many reasons our economy is a little slow to recover. So many of us got the scare of our lives, so we've become much more frugal and are saving more.
Unfortunately, the thing that drives the economy fastest is consumer confidence, when people feel secure enough to be a little looser with their funds. Still, we'll get there eventually. When the smart people have their finances in order, with their savings up and debt down, they'll be willing to part with more of their discretionary income. But it's a little bit of a vicious cycle, because a lot of people won't have any discretionary income until the economy improves.
What you're doing, buying in the range that keeps you safe financially, is actually the best thing for all of us. Good job.
We've also used that thinking. The amount of money banks are willing to give you is scary. Good luck on the mortgage process. Having just gone through it, I can tell you that it can be beyond trying (though, I've heard from a few people who have had no problems).
You know where we live and can probably guess how much our house was. The banks wanted to lend us 2-3 times the amount of the house and the realtor was game for showing us houses in that range. I had to fight with both about it--explaining sure I could afford that...and not eat, hear the house, have electricity, etc. DUH. But people buy into it anyway.
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