Mortgage Companies

[Lost Boy]

I am in the process of buying a new home.  I am an engineer and know my way around numbers.  So I have thoroughly researched property taxes, insurance, the whole nine yards on areas I am interested in buying.  I also know how much I can afford based on my income and spending patterns.

So I basically sat down with my wife and explained how much home we could afford and why.  She is more of a touchy feely type that doesn't really like to be bothered with the why.  Anyway, I finally decided to get the pre-approval letter from the mortgage company.  The amount they came back with was nearly double what I can comfortably afford.  What-the-heck???

I could very uncomfortably do 50% higher than the amount I presented to my wife, but not double.  I thought the lending industry was supposed to be mostly cleaned up?

Am I nuts?  I have 100% of the time faithfully paid off my credit cards every month since I first got one 30 years ago.   Never been late paying on any loans.  All of my cars are paid for.    I have a good handle on my expenses and there is no way I could do the amount he offered.   

The loan offered would have been about 50% of my income.  That is absolutely insane to me.  The amount I told my wife was much less (that was before I heard from the lender, so it wasn't a lie).  But now do I tell her what the real number is knowing that she really doesn't try to understand our finances?  Or do I just keep mum on it?

[Jane_Doe]

"Hey, this is what we can afford given our current spending, and the mortgage company approved it.  They actually said we could borrow more, but I don't think that's affordable with our current spending.  Here's some good houses in the affordable range..."

If she wants more details, she can ask.  If she doesn't care that's here choice.  You're being transparent about everything. 

[dellme]

9 minutes ago, Lost Boy said:

I am in the process of buying a new home.  I am an engineer and know my way around numbers.  So I have thoroughly researched property taxes, insurance, the whole nine yards on areas I am interested in buying.  I also know how much I can afford based on my income and spending patterns.

So I basically sat down with my wife and explained how much home we could afford and why.  She is more of a touchy feely type that doesn't really like to be bothered with the why.  Anyway, I finally decided to get the pre-approval letter from the mortgage company.  The amount they came back with was nearly double what I can comfortably afford.  What-the-heck???

I could very uncomfortably do 50% higher than the amount I presented to my wife, but not double.  I thought the lending industry was supposed to be mostly cleaned up?

Am I nuts?  I have 100% of the time faithfully paid off my credit cards every month since I first got one 30 years ago.   Never been late paying on any loans.  All of my cars are paid for.    I have a good handle on my expenses and there is no way I could do the amount he offered.   

The loan offered would have been about 50% of my income.  That is absolutely insane to me.  The amount I told my wife was much less (that was before I heard from the lender, so it wasn't a lie).  But now do I tell her what the real number is knowing that she really doesn't try to understand our finances?  Or do I just keep mum on it?

Welcome to the Housing Bubble 2.0 or Housing Echo Bubble.  They give you enough rope to hang yourself with.  Not as bad as Bubble 1.0 (where a friend of mine got a 300k loan with 0% down on 60k income-just nuts), but still bad.

Telling her depends on what she will do with the number; will she use that as justification for larger debt or will she think that's nuts like you-if it is going to cause problems (i.e. but honey we can buy this way overpriced house b/c the bank said so) I wouldn't, I just tell her the amount you plan to get.  If she think it's nuts then sure why not.

[Lost Boy]

4 minutes ago, dellme said:

Welcome to the Housing Bubble 2.0 or Housing Echo Bubble.  They give you enough rope to hang yourself with.  Not as bad as Bubble 1.0 (where a friend of mine got a 300k loan with 0% down on 60k income-just nuts), but still bad.

Telling her depends on what she will do with the number; will she use that as justification for larger debt or will she think that's nuts like you-if it is going to cause problems (i.e. but honey we can buy this way overpriced house b/c the bank said so) I wouldn't, I just tell her the amount you plan to get.  If she think it's nuts then sure why not.

She is far more likely to run with the highest number mentioned and not worry about how to pay it.

[Jane_Doe]

5 minutes ago, Lost Boy said:

She is far more likely to run with the highest number mentioned and not worry about how to pay it.

She's that out of touch with money?  

Is she ok with "Mr Lost Boy, you worry about the finances and tell me what we can afford.  Don't tell me the details- I don't want to know."?

Edited May 22, 2018 by Jane_Doe

[Guest MormonGator]

9 minutes ago, dellme said:

Welcome to the Housing Bubble 2.0 or Housing Echo Bubble. 

Yup. We learned nothing from 2008. 

[NeedleinA]

Just now, Lost Boy said:

She is far more likely to run with the highest number mentioned and not worry about how to pay it.

Then do not tell her, please.
If she has proven to you in the past not to care about the "why", well with one of the biggest purchases you can make, now is not the time to let "feelings" get in the way.
Buy only what allows "you" to sleep comfortably at night without the thought of lingering or overwhelming debt over your head because lenders or your wife's feelings got you into a financial pickle.
 

[dellme]

Just now, MormonGator said:

Yup. We learned nothing from 2008. 

Hey it'll be a great time to buy in about 3 years! I've just got to sell my current house before it comes crashing down again . . .

[dellme]

2 minutes ago, Jane_Doe said:

She's that out of touch with money?  

Is she ok with "Mr Lost Boy, you worry about the finances and tell me what we can afford.  Don't tell me the details- I don't want to know."?

That's what my wife does.  "Honey tell me how much we can pay for and I'll help find the house".

[dellme]

3 minutes ago, NeedleinA said:

Then do not tell her, please.

Unless you want to make this a battle, yeap.

[unixknight]

I bought my first house a little over a year ago and had a similar experience.  I was approved for a lot more than we could reasonably keep up with.  We ended up buying a house for somewhat less than the max I felt we could do, so we're in good shape.

To be honest, I wonder if it's a deliberate strategy by the banks...  they lend you more than you can repay, you fall behind, they foreclose and re-sell the house at a profit.

That's how a lot of those shady "your job is your credit" car dealers work.  They sometimes sell the exact same car multiple times.  $$$

Edited May 22, 2018 by unixknight

[Guest MormonGator]

 You need to be smart, and only get the house you can afford. Your housing payment should be no more than 25% of your income, regardless of what the lender offers you. 

Edited May 22, 2018 by MormonGator

[unixknight]

1 minute ago, MormonGator said:

 You need to be smart, and only get the house you can afford. Your housing payment should be no more than 25% of your income, regardless of what the lender offers you. 

Good advice, but complicated by things like taxes in escrow, PHI and insurance which all get paid each month with the mortgage payment.  My mortgage is comfortably under that 25% but the other stuff brings it up to around 40% of my take home.

[The Folk Prophet]

Percentage of income isn't a valid way to mathematically determine such things.

Let's say, for example, someone makes 1 million a month (net). Can they afford to spend more than 25% of their income, as Dave Ramsey would suggest, on their house -- particularly if they're frugal with the rest of their half-million a month? Yes. Obviously. 

[Guest MormonGator]

Just now, unixknight said:

Good advice, but complicated by things like taxes in escrow, PHI and insurance which all get paid each month with the mortgage payment.  My mortgage is comfortably under that 25% but the other stuff brings it up to around 40% of my take home.

It is complicated, and obviously it's not an exact science. Adding all expenses like taxes, insurance, home association fees, I would want a bit more wiggle room than 40% of my income, but that's only for @MormonGator. 

[NeuroTypical]

34 minutes ago, Lost Boy said:

The amount they came back with was nearly double what I can comfortably afford.  What-the-heck???
...
But now do I tell her what the real number is knowing that she really doesn't try to understand our finances?  Or do I just keep mum on it?

Reality of the situation: If you're looking for more debt than you can afford, you don't need to go to a mortgage company.  There are also payday loans, credit cards, ME loans, and my cousin Vinny.

No really - do not expect the government or industry to protect you from yourself.  You are responsible for making wise choices.  The government is not responsible for keeping you from selling yourself into slavery.

Your wife should understand this as well.  If she doesn't, it falls on you to help her understand.  

[The Folk Prophet]

2 minutes ago, unixknight said:

Good advice, but complicated by things like taxes in escrow, PHI and insurance which all get paid each month with the mortgage payment.  My mortgage is comfortably under that 25% but the other stuff brings it up to around 40% of my take home.

The advice is for all that included. And it's typically recommended at 28% of gross. But conservative ideas (like Dave Ramsey) suggest 25% of the net. But it's all garbage advise. Depends on how much money you make and depends on what other interests/needs you have for your money.

[NeedleinA]

My mortgage is $3,052 each month. My income is $2,503 each month. Best weight loss program I've tried. I sleep great in my sweat bed each night thanks to listening to my wife's feelings.

[Guest MormonGator]

I'm paranoid about my monthly finances, so I always like to err on the side of "I have less money than I think I do and I am only one month away from losing my job and complete bankruptcy" so take my caution with a large grain of salt. If it works for you, great. 

[Mike]

1 hour ago, Lost Boy said:

The amount they came back with was nearly double what I can comfortably afford.  What-the-heck???

The "heck" is that many of the decision makers in the financial industry believe its in their short term interests to make as many loans as possible with less regard for the long-term quality of those loans. They hold reserves to offset a certain percentage of anticipated charge-offs and the cost of collections. Moreover, many other loans won't remain on their books for long--there is income to be had by boarding the loans and re-selling them. 

Edited May 22, 2018 by Mike

[mirkwood]

The first loan offer we had was 3x the amount we could afford.  The loan company does not care.  Figure out what you are willing to pay monthly and tell the loan company to tell you how much the loan would be based on that amount.  You can house hunt from there.  Being house poor is financially dumb.

[NeuroTypical]

Me: 
I make $12/month.
I pay $3 in taxes, $1 in tithing, $2 in healthcare, $3 in food/gas/bills.

That means I have $3/mo to do fun things. 
$1/mo because we're saving for a car, a trip, retirement, and an emergency fund. 
$1/mo because we're paying off the last round of car repairs and furnishings and stuff.

So I've got $1/mo with which I may go buy a house.  

 

Not me: 
Hooray!  They said they'll loan me so much money I can buy a huge house, and it'll only cost me $3/mo!  I make $12, so that's only 25% of my income!  Obviously I can afford it!

 

Edited May 22, 2018 by NeuroTypical

[NeedleinA]

1 hour ago, NeedleinA said:

My mortgage is $3,052 each month. My income is $2,503 each month. Best weight loss program I've tried. I sleep great in my sweat bed each night thanks to listening to my wife's feelings.

@zil, no worries... this was my poor attempt at humor, I'm all good. The above post was fiction. Clock is ticking, 9 more months and in real life I'll be mortgage free.

Edited May 22, 2018 by NeedleinA

[e-eye]

I'm a loan officer.  Yes 50% is pretty common for an approval on your debt to income and in some cases with different loans I see some approvals go to 56% and sometimes beyond .  Lending is not as crazy as it use to be, but the real potential problem is not when a person making 4k a month and spends 2k on a mortgage with little to no savings.  

Most people walked away from their homes because they looked at it as a poor investment and didn't see it as a value to continue paying on their mortgage.  Negative amortization loans blew up on people and things got worse with unemployment was high.  If values drop again you will see a bubble, although I don't perceive it will be as bad, unless the economy implodes and it's worse than what we saw 10 years ago.  If things continue to boom we are more likely to see a larger bust as things can't go up forever.   

[zil]

5 minutes ago, NeedleinA said:

@zil, no worries... this was my poor attempt at humor, I'm all good. The above post was fiction. Clock is ticking, 9 more months and in real life I'll be mortgage free.

Phew.  Now I shall go ponder how to make you pay for that.  Maybe I'll send you a fountain pen.  Unless you get really addicted, $2,503 is way less than you'll need for ink and paper each month.