You Control Your Buying and Investing Power
As a home buyer and as an individual, you need to understand that you control your buying and investing power. The estimates that you get from lenders only shows a small portion of your financial life, shown through the lens of that lender’s product. It’s up to you to take a big-picture view of your buying and investing power, both in the present and in your future. Don’t rely on lenders to tell you what you can and cannot do; decide for yourself what you can afford and plan your life according to your vision.
Lender Viewpoints May Not Reflect Your Lifestyle
When lenders calculate how much money they’ll loan you, they typically go according to a formula that they’ve established to balance potential risk. Depending on the lender, you may encounter a more or less conservative formula than your personal thoughts on financial risk. For example, a lender may say that you make enough money to borrow $150,000, but you may look at the potential mortgage payments and decide that your lifestyle is such that you can only afford to borrow $120,000. It’s up to you to evaluate all of the pieces of your life and decide what you can afford and want to spend; don’t rely on a lender to do this for you.
Consider Your Long-Term Investment Plans
When you’re thinking about how much to spend on a home, consider not only the mortgage payments but also your long-term investment plans. A home should not be your sole investment planning. You should also invest in an IRA or other retirement savings plan to ensure you’ll have enough money when you retire.
Make sure that any home you buy leaves you enough money to invest in your other long-term plans and still meet your financial obligations. You may decide that you need an extra $500 per month for retirement savings and want to buy a smaller home as a result. Only you can make this determination, so think about your long-term plans and other investment options when you buy.
