I rarely run someone’s application and tell them how much they are approved for. I ask them how much they would be comfortable paying for their mortgage payment.
Many times, people qualify for a lot more than what they are comfortable paying.
You must take into consideration a lot of factors to determine how much you should pay for your monthly housing expense. Some people like to eat out, vacation, shop. None of these expenses are considered when the bank qualifies you for a home, neither is your gas expenses, cell phone bills etc. It is important to do a thorough analysis of your life and your spending habits before you determine how much you should spend each month on your house. Some people enjoy staying at home and doing home projects while others prefer to be out and about, these preferences also help determine what type of property you should buy. For example, in a condominium someone else maintains the outside of the property and the grounds making it a great option for someone who is not interested in tending to yard work and ongoing maintenance.
Get rid of your expensive car. A car is generally someone’s first purchase. Transportation is a necessity, but your car is not an investment it is a depreciating asset. It is worth less and less each year and requires maintenance and insurance. I see so many people not able to qualify for the houses they want because they have big car payments. To put this into perspective, if your car payment is $400.00 per month, then you qualify for $100,000 less in your mortgage payment then if you had no car payment. The difference in what you could buy for $300,000 vs $400,000 is huge. Auto loans are easy to get and driving a nice car might seem appealing, but if home ownership is in your sights, then hold off on your dream car. Buy something cheap and reliable and save the dream car for later. If your car doesn’t have too much left on the balance it might make sense to use some of your down payment money to pay off the car and put a little less down on the house. This is all something that a qualified mortgage professional should be able to tell you but many times they run your credit and give you a number and don’t explain options that could help you accomplish your goals.