The Honest Broker: What can I afford to buy?
Whether you are making your first purchase or are a seasoned veteran at purchasing real estate it is very important to proceed in an order that makes sense to your lifestyle and purchasing power.
First, and foremost, it is necessary to establish where your purchasing limits are; what can you afford most comfortably. When consulting with a mortgage broker or bank, they have a set formula that measures your liabilities (bills) against your income (wage/salary/etc.). Theoretically, this formula determines how much you can afford. However, it doesn’t take into account your lifestyle; vacations, disposable income for restaurants and shopping or most importantly, for saving. For instance, the formula may determine that you can afford up to a $300,000 home. With that in mind you begin to look for a home within that boundary. In the long-term, this may set you up for becoming “house poor”. A phrase everyone has heard, but no one wants to be.
It has become my practice to counsel my clients to work backwards.
For example, they should tell the mortgage broker what their maximum comfort level would be for a mortgage; to include interest, taxes and insurance. Armed with this knowledge, the broker can readjust his calculations and possibly give a different, much lower price range for them to be looking in, possibly the suggested amount would be $275,000 instead of $300,000. After looking in your comfort range you may not find something that you like and then end up making the decision to increase your price point with the full knowledge that there may be sacrifices to be made in the future. Also, when making the decision of buying power, the buyer may be able to get into a move-in ready condo for the price of a fixer-upper house.
That brings us to the next step.
The buyer needs to determine what and where they would like to live; condo or house, city or suburbs, distance to schools, etc. However, this is also dictated by price point. Can you afford to buy a move in ready home/condo in your desired location or are you willing to buy a fixer-upper in that desired neighborhood and take the time to make the renovations, upgrades or changes that you would like to make. Historically, a good real estate investment is to pick the best location. If you’re adventurous, it is my professional advice to find something in your price range in the best location and take the opportunity to make it what you want over a comfortable length of time. This will undoubtedly be the best avenue for a positive investment experience.
Diane Lott, Broker
Paradise Found Realty, Inc. of Palm City
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