Brian's Blog

We have a lot of new home construction here by reputable builders that target 1st time buyers by sometimes including in their marketing "Your rent payment can be your mortgage payment!" Most 1st time buyers do not understand that your mortgage payment including Principal, Interest, Taxes, and Insurance (PITI) actually needs to be 75% or less than your current rent payment. This is definitley the case if your rent payment is the MOST you can afford right now in order to pay all of your bills on time and you have little savings.

I know, I know -In this Instant gratification world we live in, we all want to buy as much as we can - The biggest house , the nicest car  the most toys  ect. So this leaves you asking a few questions which I will state here:(If I haven't read your mind and you have more questions, please feel free to leave them as a comment)

• Why would I want to have my mortgage payment including PITI be less than 75% of my rent payment? When you rent you never think about "hidden" costs that are associated with owning a home which is why you need to save 25% of the payment you are comfortable with. The BIG ONE is repairs and upkeep of the home. If you buy a new construction, you are probably thinking, "This is a brand new house and I have a warranty on everything -What could be that expensive to have to save for?" I'm glad you asked! ---One of my clients, who bought his first home as a new construction, did not take my advice and during construction he and his wife continued to upgrade his home - adding thousands to his mortgage and bringing him to his Maximum Debt-to-Income (DTI) ratio and little savings left. A week after they moved in, they went on vacation to Disney World for a week to celebrate their new home and take some well deserved time off. When they left for Disney, we had 75 degree days. Unfortunately, we had 2 nights in a row when the temperature fell below 20 degrees and his pipes burst under his kitchen sink early in the week. They came home to their new house flooded and had to replace  sheetrock, carpet and padding, and furniture. Since they had left no room in their budget for maintenance and had little savings left after buying their home, they had to tap into their equity and get a 2nd mortgage just for the repairs that did not give any extra value to the home. ---
• How much house can I afford with only 75% of my current payment? I'm glad you asked! Let's use a real world example: You live in a nice apartment, the rent is $900 per month, and you are making all of your payments on time - saving some for the downpayment on your home. $900 x 75% = $675 - $100 for Taxes and Insurance = $575 for Principal and Interest. If you are obtaining a 30 year Mortgage, the rate is 5.75%, and you ae putting 10% Down - your Mortgage Amount will be $98,530. $98,530 + 10% down payment $10,950 = $109,480 Sales Price.  I know, you are saying, "That is not a very big house!"

    Keep in mind, THIS IS NOT THE HOUSE YOU WILL LIVE IN THE REST OF YOUR LIFE and you can buy a home that just needs some inexspensive cosmetic facelifts (painting cures a lot of this PLUS a lot of elbow grease). This IS the house you will start your family in, realize how much $ and time it takes to maintain a home, PLUS  save up for kid's college, your retirement, and to move into a bigger home someday.

Okay, this post is getting a little long - so I will leave you with the true story of someone who did realize and put into practice the information above. We'll call him Bill - because, um, that's his name.

   Bill got married right after college and wanted to buy a home instead of continuing to rent. He and his wife made $30,000 between them. He took the advice of his Mortgage lender and bought a house below his means. Over the next 5 years, everytime he or his wife got a raise - they NEVER raised their level of living - they saved everything above their original budget. On their 5th Wedding Anniversary they decided it was time to start their family and have a bigger home. They bought 12 acres of land with the money they had saved, sold 2 acres along the main road and built a home twice the size of their first home in the middle of the 10 acres  but with the SAME mortgage payment! Because they lived below their means, whenever something needed to be repaired or replaced - they paid cash for it instead of running up Credit Card debt or adding a 2nd mortgage. 

  If Bill had always raised his standard of living with every increase in Income he received and never saved, he would have never been able to build the new house in the amount of time or have the same low mortgage payment. So -since he lived below his means for 5 years- he is able to enjoy a home he could not have bought other wise.

Bill's story is amazing and I wish I had done the same thing. But I'm like most of us - I want what I want and I want it NOW!