A Little Bit of Knowledge Goes a Long Way!

Today I received a phone call from a prospective client who is interested in obtaining my mortgage services. We have been in touch over the last several years ever since she came to one of my "Home Buying Seminars". She called to tell me that she had found a home that she was interested in buying and wanted me to calculate what her mortgage payment would be. I asked her what the purchase price would be and she told me that she had made an offer of $475,000 on the home. I also inquired as to the amount of real estate taxes and was told approximately $7300. She wanted to put down a substantial down payment of $95,000 which represented 20% of the purchase price. After crunching the numbers I quoted her a total payment of $3175 based on a fixed 30 year mortgage which included the real estate taxes and home owners insurance. I asked if that sounded about right and she said that 'there was no way that she could afford that high a payment'. I asked her what number would she be comfortable paying and she replied "$2500". I was surprised by her answer and proceeded to let her know that the only way her payment could possibly be that low would be if she took out a 50 year interest only mortgage. She thought a moment and wondered out loud if that would be a good option for her. I mentioned that I thought it might be a good idea to look at homes that would cost less money but she felt that there weren't any good homes that would be less costly. She got off the phone after thanking me for spending so much time with her. I got off the phone thinking that I wished people would take the time to crunch their own numbers before they spent so much time and energy looking and bidding on properties. A little knowledge goes a long way in understanding how much home you can afford to buy if you wish to stay in your financial comfort zone.