It can be exciting to be approved for more money than you originally thought you were going to get for a home. Before you do your happy dance and start shopping for an even more awesome luxury house, you need to look at the big picture to ensure you are truly financially capable of paying the mortgage each month. Here are two reasons why that dream offer may turn out to be a nightmare.
Not All Your Expenses Are Counted
The top reason why you may end up with a bigger mortgage offer than you thought is because either you or the bank didn't account for all of your expenses. On the mortgage application, you're supposed to provide amounts for your household expenses and other liabilities (e.g. alimony, child support). The bank also takes a look at your credit report to determine how much you owe your creditors and how well you're able to keep up with the payments.
However, there may be expenses that both you and the bank didn't take in account when assessing your budget. This is particularly true if you are a first-time buyer or going from a zero rent situation (e.g. living with parents) to homeownership. If you have children, for instance, it's easy to overlook the clothing, annual tuition, and other—almost daily—expenses related to raising kids. Additionally, there are many expenses related to owning a home (e.g. repair, trash collection) you need to factor into your budget to ensure you have enough monthly income to cover all your liabilities.
Before accepting the offer from the bank, take an honest look at your income and list all of the expenses you have or expect to incur after purchasing the house, and compare the two to ensure you can truly afford the mortgage.
You Have Major Life Changes Coming Up
Another thing that will impact your ability to afford the mortgage is your future plans. Sometimes in the midst of searching for and buying a home, people forget about the changes that may be occurring in their lives in the near future and the financial impact those changes may bring. For instance, if your aging parent may need someone to care for him or her in the next year or two, you should account for the cost of having your parent live with you (e.g. in-home nurse, health care).
Even if you don't expect your future plans to manifest for several years, you should consider how your finances will be affected by them and make the appropriate decision based on that to ensure you can still afford your mortgage when those changes occur.
For more information, contact local professionals like Remo Paul Group.