What Would The Mortgage Lender Do?

It happens all the time.  I'm sitting with a prospective home buyer, going through mortgage options together, and they ask me "What would you do if you were me?"

I love that question.  It shows that they trust my knowledge and experience and they consider my advice valuable.  So...I answer them!

That answer's not always the same either.  There isn't one 'right loan' solution.  Things like the size of their savings, the stability of their income and the likelihood of them staying in the house long-term are just a few of the factors that could make that answer different.

There are two things that I personally would ALWAYS do when buying a house, though.  Let me take a minute to share them.

Have Emergency Savings

Many people who are looking to buy a house are living paycheck to paycheck.  They don't see that as something to worry about because, hey, it's worked for them so far, right?  Many times their mortgage payment will even be lower than their rent so...why not?

Here's why not.  When you own the house, you are responsible for the house.  Things break, it is part of life, and as the homeowner you have to pay for fixing those things.

Purchasing a home warranty can protect against some of this risk but there are always things that are not covered.  I can't tell you how many times I've had a client call me after their home closing to say "Oh no, the water heater/furnace/sump pump/refrigerator broke!  I don't have the kind of money needed to fix it.  What can I do?"

My answer always breaks their heart.  "The seller isn't going to cover this and neither is the home inspector.  It's your house now.  You need to find a way."

So...what would I do?  I would always, ALWAYS, have at least $1,000 in a savings account earmarked just for potential home repairs prior to ever becoming a home owner.  $2,000 would be better...or maybe $2,500.  At a minimum though, I'd have $1,000.

Leave Room For Change

When you're buying a house, it's so easy to look short term.  This house is just right for us right now!  We can totally afford the monthly payment!  It's perfect!

It probably is perfect...now.  But will it be perfect 3, 5, 7 years from now?  While you can sell a house down the road if it is no longer 'perfect' then, there are costs involved in selling a house. Realtor commission, title company fees and property transfer costs will all have to be covered.  Home buyers frequently find that, once they want to become the home sellers, they can't.  There is not enough equity in their house to cover the costs so they can't sell.

Knowing that, I always look at a house not only in terms of "Does it fit my life now?" but also "Will it fit my life 5 years from now?"  If the answer is "Maybe not", then maybe this is not the right house for me.

That same long term approach needs to be taken on the monthly payment.  People often want to buy right up to the maximum they can qualify for.  Why not?  Who wouldn't want the best house they can get?

Here's why not - life changes.  You may need to buy a new car, a new furnace, or pay unexpected medical bills.  Your work scenario may change because of things beyond your control, or maybe it will change because you WANT it to.  You may choose to change careers or cut your hours or open a business of your own.  If you're tied to the maximum mortgage payment you could qualify for though, you're trapped.  You can't handle the things you don't want and you don't have the freedom to pursue the ones you do.

So...what would I do?  I would leave some wiggle room between my budget and that payment.  Actually, I'd leave ALOT of wiggle room.  If life brings me something bad or (hopefully) something really really good, I want to be able to take it.

There are more things I'd do, and maybe sometime I'll write a 'Chapter 2' to share those. For now, though, I'd ask all prospective home buyers to trust the advice of this wise old mortgage lender who has bought alot of houses personally and financed a WHOLE lot more for others.  Save some money and leave some wiggle room to prepare yourself for the good and the bad.  

And...when you're ready to take that step into home buying, call me :).  

To learn more about the products covered here or any other aspects of home financing, contact Lori Hiscock at lori.hiscock@ruoff.com.  

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.

Ohio Mortgage Broker Act License #MBMB.850220.000

The Florida Office of Financial Regulation License #MLD1182