Applying for a mortgage can be nerve-wracking. Underwriters consider your credit. They dig into your divorce decree. They scrutinize your savings and inspect your income.
But they also ignore some factors that could drastically impact your ability to successfully manage a home loan.
In fact, you could find yourself approved for a home loan that you can’t realistically afford.
Just Because You Can, Doesn’t Mean You Should
Mortgage lenders are nosy, but even they draw the line at some point. This can cause them to miss some important matters.
Consider the most common causes of bankruptcy. Then see if there are any questions about these factors on your mortgage application.
The most common causes of bankruptcy are medical expenses, divorce, and job loss. And yet, no lender is going to ask you about your hardening arteries, the state of your union or your last performance review.
They don’t even ask if you have health insurance. Yet that’s obviously a factor in your financial profile.
Underwriting Your Life
Before applying for a mortgage, give yourself a reality check.
Don’t be one of those couples who try to solve awful marriage problems by having another baby or buying a house. You’ll just be upping your expenses and your blood pressure…
Which leads to….
Your health – even a young heart and strong bones can’t protect you from the idiot in the next lane trying to drive, eat a Big Mac and sell real estate at the same time. Accidents happen, and they can be expensive.
No insurance? No mortgage payment money.
Finally, understand that just because your lender liked your pay stubs and your W-2s, it won’t matter if your boss didn’t like your performance last quarter. Or if your company’s financials are in the toilet.
Only you know these things. And only you can consider them when deciding to buy or refinance a home.
Other issues that lenders ignore include your commute and your lifestyle. Yet, housing in many major metros gets very expensive near the largest job centers.
It’s become common for consumers to buy homes further away from their employment than they used to so they can (on paper) afford their mortgages. Industry insiders call this “driving until you qualify.”
Your commuting costs still exist, though, even if they’re invisible to mortgage lenders.
According to CPA Practice Advisor, commuting costs Americans on average $3,000 a year. That’s $250 a month, and adding that to your other bills may turn an affordable home into an anchor around your neck.
Note that some of this cost may be accounted for if you have an auto loan on your credit report.
HUD says to be affordable, your housing plus commute should not exceed 45 percent of your gross (before tax) income. Ask yourself if the house you want is truly affordable once you add in the cost getting to work.
Your lifestyle also affects the amount of money available to pay your mortgage.
To some people, heli-skiing, following their favorite rock band or heading to Belize once a month are more important than saving money or even paying their bills.
Some, for religious or other reasons, contribute ten percent of their earnings to charity.
Others like to knit sweaters for cats and drink tea.
If you’re one of those homebuyers who lead a more expensive lifestyle (and you know who you are), figure out the cost of your happy habits and include them when deciding how much home you can buy.