REAL ESTATE
Port Townsend, WA

View ALL listings
of real estate for sale in Port Townsend and Jefferson County.

Getting A Mortgage You Can Afford

A mortgage lender can only tell you how much you qualify to borrow. They cannot tell you how much you can afford to borrow.

Asking a lender how much mortgage you can borrow is the wrong strategy. They can tell you how much they're willing to loan you, based on your credit score, your income and other factors. But they can't tell you how much you can afford to borrow.

Now you might be thinking, "Why would a lender put me into a loan they know I won't be able to afford down the road? Don't they lose out on that too?" Not necessarily.

We have a thing known as the secondary mortgage market in this country, where lenders can package up their loans and sell them off to other organizations (such as Freddie Mac). These mortgage-backed securities will then be sold again through Wall Street. So a lender can make a bad loan and suffer no future repercussions at all. It's a broken system, but it's the system we have right now.

Now you can see why it's so important to look out for yourself. Before you even contact a lender for a quote, you need to determine how much mortgage you can afford to borrow by establishing a budget. You might not get approved for that amount, but at least you'll have a realistic number in mind based on affordability.

The best way to figure out how much house you can afford is by examining your monthly expenses versus income. Subtract your monthly expenses from your monthly income (after taxes), and you'll have a general idea of what you could afford to pay toward a mortgage each month.

Your list of monthly expenses should include:

• Car payment and auto insurance payment
• Grocery costs and other shopping expenses
• Credit card payments and other monthly loan payments
• Any ongoing healthcare costs you have
• Whatever you put toward savings and retirement each month
• Entertainment and leisure expenses (dining out, movies, etc.)

By the way, if you are currently renting a house or apartment, you can leave that monthly expense off this list. Obviously, that expense will disappear as soon as you buy a house.

Add up the monthly expenses from the list above, and then subtract them from your net income (i.e., your take-home pay after taxes have been taken out).

The number you are left with represents the amount you can afford to put toward a mortgage payment. You should not exceed that amount when taking on a home loan.

If you do exceed that amount, one of two things will happen:

• You will increase your income in some way, possibly by taking a second job.
• You will begin to fall behind on your mortgage payments and face foreclosure.

This is not the kind of position you want to be in. It's often referred to as being "house poor," and it happens to thousands of new homeowners every year.

Here's how it usually works: The home buyers have a pretty good idea of how much house they can afford to buy. In the beginning of their home buying process, they have every intention of staying within that budget range. But then they visit a property that's slightly above their budget (or maybe even a lot above it), and they fall in love with the house. "It's everything we dreamed about!" So they buy the place, and the next thing they know their life is one big sacrifice. No more dinners out. No more vacations. No more extra money to put aside into savings each month. In other words, they have become house poor.

It's in your best interest to avoid this kind of thing, and you can do it through proper research and planning. It also helps to be realistic about your budget, through every step of the process. Buying more house than you can afford is a recipe for financial hardship.

Have a question about real estate?

Let me help you. All my years of experience as a Realtor have given me a wealth of knowledge about selling and buying real estate. If I don't already have the answer to your question, I know just where to go to get it. Simply use this handy form.