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The One Question Bankers Don’t Want to Answer About Mortgages

There are likely a number of questions that bankers don’t want to answer. For example, “What’s the most exciting part about banking?” If you’ve ever walked into a bank, you know that there’s really not a good answer to that question.

But, when it comes to the home-buying process, there is one question—above all other questions—that sends a nervous tingling sensation up a banker’s spine.

“How much can I get pre-approved for?”

Questions About the Home Buying ProcessMany times, when someone is looking to purchase a new home, this is the first question they ask. After working for more than 10 years as a lender, I now reply with, “Instead of me running some calculations and determining a dollar amount, what kind of home do you want to afford?”

Purchasing a home shouldn’t be a quick decision based simply on a pre-approval amount. It’s not a small purchase that can easily be dumped or refinanced (like a car or boat) if you feel uncomfortable with the payment. Therefore, you need to make absolutely certain it’s a payment amount that works within your personal budget.

Determining how much you can actually afford

The best place to start is to look at your current monthly income and expenses. Start with your net, take-home pay. Sure, when the bank runs ratios, we look at your gross income before taxes, retirement contributions, insurances, etc., but we all know the check amount is much lower.

Then, look at your monthly expenses. Dig out credit card statements and bank account statements. Really look at what you are spending each month. Just because you have a set amount you want to spend on going out to eat doesn’t mean that is what you are actually spending. Make sure to include a monthly amount to save and consider other life events that may have an impact on your finances: what if there is a gap in employment, you want to take a Mediterranean cruise, or you have a baby. Again, buying a house is a long-term decision and that payment doesn’t just go away (at least for 30 years in most cases), so thinking ahead will benefit you.

Crunching the numbers

Now that you pulled together what income you bring home and how much you are spending per month, you can determine the monthly mortgage amount you would feel comfortable with. Find an online calculator or contact a loan officer to figure out what your payment would be on various loan amounts.

Also, don’t forget about taxes and insurance. Depending on where the house is located, the real estate taxes can vary—especially if the home is within or outside of the city limits. This information is typically available through your realtor. If not, you can usually find it online. McLennan County properties can be searched on the Tax Office website. Also, insurance premiums can vary based on the age of a home, its condition, and your credit. To help with your calculation, use an annual insurance premium of 1% of the home’s value.

Once you’ve figured out what amount you want to afford, we can then make sure that you qualify for that amount. Then, you will be in a home that you can truly enjoy.

About the Author

Molly Rieger is a loan officer at Central National Bank and also serves as the bank’s chief credit officer. She enjoys Camp Gladiator fitness boot camp, following all Baylor sports, and watching reality TV with her husband and two kids. Maybe someday we will see her on Survivor or Amazing Race; but, probably not on American Ninja Warrior.

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