Affording your dream home

There is a good chance that you have been thinking about your dream home your whole life. A two-story home with a white picket fence, red roses in the flower bed and an in-ground pool with your 2.3 children splashing around in it is finally within your grasp.

Too bad you just didn’t inherit it. As mortgage rates and home prices continue to climb, affording that dream home is becoming more difficult.

The mortgage.fidelitymortgage.com article, “Affording the ‘American Dream,’” provides some helpful advice to determine if you really can afford that long awaited abode.

“Home ownership is more than trading your rent payment for a mortgage payment. Owning a home involves a great deal of responsibility, and we all know that another way to say ‘responsibility’ is ‘money.’ An essential part of becoming a homeowner is understanding how much 'responsibility' you can handle.”

The first thing you should avoid doing is falling in love with your house. It’s easy to fall in love with a house, particularly if you have never owned a home and long to go to bed without hearing your upstairs neighbor bowl into a dance party.

“Home is a powerful concept, and it would be callous to pretend that buying a house is nothing but a business investment. There’s a reason it’s part of the ‘American Dream.’ It’s about independence, freedom, and so many other intangibles that give you happy little ‘this could be MINE’ Goosebumps.”

You have to refrain from falling in love with one particular house, though. This will allow you to avoid a potentially hazardous mistake by buying a home you cannot afford, which will lead to default payments and maybe eventual foreclosure. Besides, you will probably find another “dream” home just like it in the same neighborhood or on the same street.

Now you have to determine how much you can comfortably afford. One way to accomplish this is to prequalify for a loan. Prequalifying through your lender will provide you with an idea of how much you can borrow, based on your monthly income, assets and other financial obligations and liabilities.

But keep in mind that the amount you prequalify for will usually be a lot higher than you will want to spend each month. You technically could afford the payments (you wouldn’t have qualified for it otherwise) but you would have to eat processed soup every day and make your own clothes. And if anything out of the ordinary happened which required immediate finances (a death in the family or losing your job), you would not be able to afford the payments unless you had an emergency savings fund.

“So sit down with your prequalification numbers and give them a good realistic trimming that takes your actual budget and lifestyle into account. If you’re currently making a $1,200 rent payment and living a lifestyle you want to continue or improve upon, consider how ‘prequalifying’ for a $3,000 mortgage payment would cramp your style.”

Once you have set a price range you are comfortable with, you should contact your real estate agent to have him or set up a few appointments to look at home in that range.

“Some buyers confuse prequalification with mortgage preapproval. This is a more rigorous procedure in which the lender verifies your information, checks your credit, and makes a commitment to provide the loan. Some preapprovals also come with a rate lock, which greatly simplifies the process of shopping for a house and making an offer. When you write an offer for the purchase of a home with a letter of preapproval from the lender, it makes for a much more attractive package to the seller because they can be confident your loan won't fall through.”

There are many things to consider when buying that “dream home.” Relax. Don’t jump into anything and try to control your emotions.

Buying a home should be a positive, rewarding experience. You do not want any regrets five years down the road because your monthly payments are too high.

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