YOU Need to Be In Charge
Posted by Gail | Filed under Home Buying, Take Control
With a new show in pre-production, I’ve spent the last few weeks immersed in the reality genre, getting to know the competition a little better. I’ve found couple of shows I like. I think the hosts of What Not To Wear are funny as all get out, though I’ve learned that to overdo a pet phrase like “Shut UP!” can get a little annoying. Though I really see it as an editing problem if Stacey says this more than once in a show.
I caught an episode of Property Virgins the other night during which I was appalled to hear the host tell a couple that since the bank had pre-approved them for $350,000, that’s how much they should spend. She tried to convince her poor –sucker-clients that since the bank had run all their numbers, checked their credit history, calculated their debt-to-income ratio, it was the best judge of how much debt they could afford to take on.
Really? The company that’s in the business of collecting interest to make a profit is the best guide for how much you should end up borrowing? Wow! Kinda like putting the robber in charge of the bank, dontcha think? Course this is all coming from the woman who only makes a commission if she sells a house, and whose commission is directly related to how expensive the house is. Hmmm.
Time and again I try to impress upon people that where you get your advice is an important part of how you weigh that advice. Yes, a realtor can save you from buying a house in a fly-over zone – I love that ad, particularly when the guy puts his arm through the cupboard door – but is not necessarily the best person to help you decide how much home you can afford. And certainly, the lender who is going to make gobs of money off your borrowing shouldn’t either.
So who should? Well, that would be YOU. Since it’s your money, your cash flow, your long-term interest pain, only YOU should decide what you can actually afford.
Ultimately, the amount you earn will dictate how much home you can afford to buy. The other factor that will influence how much home you can afford is the amount of the downpayment you’ve managed to accumulate. But the long and the short of it is that it doesn’t matter how much mortgage you’ve been approved for, you have to be able to afford to fit those payments into your cash flow if you hope to keep the house you’re buying.
Over the next few years, we can expect to see interest rates rise. While the yield curve is pretty flat right now, that’s mostly because of the Bank of Canada’s commitment to keep the rate at which it lends stable until mid-2010. It won’t stay flat forever. And people who are strapped tight on their mortgage payments (because they overextended themselves by borrowing too much) will be squeaking when they have to renew mortgages at 1, 2 or 3% higher rates.
Getting preapproved for a mortgage is always a good idea. But knowing how much mortgage you can reasonably manage is an even better one. After all, if you think one of your incomes might be at risk, if you think you might get pregnant and have to rely of mat leave benefits for a year, if you think interest rates might go up, it would behoove you to leave some wiggle room in your cash flow.
Or you can do what the lender and the real estate agent advise, spending more and then twisting in the wind when things change even slightly and you can’t come up with the bucks to keep your house of cards standing. Hey, it’s your call.
September 3, 2009 at 7:00 am
Oh yes, I love that game that mortgage people and banks play but the real estate agents. When myself and my partner were approved for a mortgage, we knew based on factors that X was the right amount as a limit on mortgage. We were approved for a lot more, over a 100,000 more! My father (who works for the Bank we got our mortgage at but in another division) was appalled at the top amount approved. It had him swearing like a sailor that it was crazy and that we would get ourselves into trouble if we took that amount! I assured him that no we were not going to get that much, because of X,Y,Z…
And then it got better when we went to look for a house… First real estate agent just didn’t get our goals… wanted us to look in certain chi-chi areas. We said no, couldn’t afford it and we needed place close to transit (ever notice how some of the nicer chi-chi areas are not very transit friendly, requiring everyone to show off in cars?)… We keep soldiering ahead with our plan for a house that was in OUR range, OUR location with not major work needing to be done, etc, etc… the couple of houses we saw that were ok, she kept saying oh no, can’t bid that, it will insult them… hmm it also meant she got less commission.
We ended up firing her and getting the agent that truly heard our needs/wants. We found a house outside of price range but he had no problem with trying to negotiate and we got it for the price we wanted and could afford!
I know the interest rates will go up – it only can at this point. In the meantime though I am thrilled that we are prepaying enough that even though it’s only been a year, we’ve taken a good chunk out of the principal already! And yes gail, we have RRSPs and savings that we continue to contribute to!
September 3, 2009 at 7:07 am
Can’t wait to hear about your new project!
My jaw has often dropped to the floor while watching the property shows – first time buyers with almost no downpayment buying ridiculously huge and/or expensive properties and having to carry a mortgage which pretty much excludes any potentional for savings or fun money. What kills me is when they come back to do the “3 months later” house tour, they’ve filled it with brand new furniture, new flooring, fresh paint and a new car in the driveway. I’d be curious to see how they are managing 1 year, 3 years later, etc.
September 3, 2009 at 7:10 am
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September 3, 2009 at 7:41 am
Gail, that show drives me nuts too! I think of all these poor people who end up being house-poor because they can afford more on paper than in real life.
It’s sad because people do trust institutions like banks and professionals like real-estate agents.
The bank told us we could afford almost double what we ended up paying for our house. They only really look at your debt ratio and your income.
They don’t take into consideration things like childcare which currently costs more than our mortgage!
Fortunately, we budgeted for those contingencies and didn’t allow ourselves to get in over our heads.
September 3, 2009 at 7:45 am
Most of the banks provide a “how much of a mortgage can I afford” online calculator, allowing you to plug in monthly expenses and current debt. I would hope that potential buyers use this tool as a start, and be honest to themselves on how much house they can afford. I think this is a must prior to beginning the “house shopping” cycle, and being told that everything is great about your credit, and you can nuts with the mortgage amount to borrow.
September 3, 2009 at 7:49 am
I should add that the rule on your monthly payments not exceeding 30% of your income (preferably based one income in the household) should prevail against any numbers provided by banks and agents.
September 3, 2009 at 8:06 am
We experienced the same thing as first-time home buyers. From the bank, not our agent (he was great). We were pre-approved for an outrageous amount, and then they were surprised when we went back to finalize a mortgage at less than half the approved amount.
We were very set on how much we were willing to spend, and also had time to look around for what we wanted. We ended up buying a house in an estate situation for about $25k less than the (very similar) houses in the neighbourhood. AND we could afford furniture & groceries! lol
We ran into the same situation when shopping for a new car recently. The first question from the sales person is “how much of a payment can you afford?” Our response was “here’s the car we want, and we’re willing to shop around for the price we want”.
We ended up at a different dealership getting the exact same car for $2K less!
September 3, 2009 at 8:09 am
When we got pre-approved, 3.5 years ago, they said we could afford twice what we paid, and that was based just on my husband’s salary, as I was still in school! If we had paid that much, we would not have been eating or heating the house, and I’m not exaggerating here! I wouldn’t want to pay that much even now that my income has increased dramatically.
I always shake my head at Sandra on Property Virgins-she regularly talks people into spending more than they initially state. I talked to so many people before we bought the house, to find out as much as possible-I thought of it as “multi-method, mulit-trait measurement” (as I learned in my psychology studies)-if you acquire a lot of info from different sources about related topics, you can decrease error in measurement (in this case, mistakes about buying and borrowing). If you depend solely on the bank or a realtor who doesn’t have your interests at heart, there is lots of room for error, as Gail astutely points out.
September 3, 2009 at 8:28 am
Shows like that are called ‘real estate porn’.
A fitting description.
September 3, 2009 at 8:29 am
This is a very good post – as I agree with the above commentors that the banks and real-estate agents do not have your best interest in their minds.
This same came be try for renting place also. I find that “The Jones’” are becoming less and less the family to keep up with. Case in point, my boyfriend and I have just taken possession of our first apartment together. two months ago when we were looking we very nearly rented a townhouse with all the space we wanted, a backyard that required maintenance, the number of bathrooms that was the ideal etc. etc. I say very nearly because when we came home from that place the second time – after delivering our application form, I said to him, perhaps we should sit down and make a budget for this place to make sure we can handle it, and get our debts paid off the fastest way possible.
We did said budget, and I watched his heart drop and his head drop and his anger spike because on his salary he couldn’t manage the payments, the lifestyle and the accelerated debt repayment plan he wanted. he scoffed because he didn’t believe the numbers, called his brother who had purchased a house just prior to the rules changing in Oct. 08 and talked to him about things. What happened next was his A-Ha moment. he found that although the green grass of having a house was so lushious and inviting, he found out they needed a loan for their down payment, that they were barely affording the payments, the lifestyle and the cars that keep breaking down, the child involved and all these various things. His brother is currently finishing their basement so they can get a renter to help offset the shortages each month.
And thusly, we are now in a smaller place with more affordable payments, half the utilities directly included in the rental price and have bundled and negotiated the other splurge utilities into one manageable payment each month.
We sometimes watch those reality shows you mentioned Gail, and find that Property Virgins is a horrible representation of real estate agents in it for their commission. There is another show on HGTV also – set in the states i think – that takes a house buyer, their pre-approval amount and shows them some house, plus the renovations they will complete for them to top out the borrowing amount. This show also has the people involved ending up with houses they truly shouldn’t be able to afford – last night a woman had saved $30,000 for a down payment and managed 100% financing, so they used her down payment as the renovation amount and found her a modestly priced house to buy. forgetting that these improvements will probably cause a re-assessment, and then she’ll end up having to sell and find something smaller, and less updated. I forget what happened because they show bugs me enough that I can’t get through more than a 15 minute look at it.
September 3, 2009 at 8:37 am
This is a timely post as I took possession of my new house two days ago. I also watch Property Virgins and have noticed the pressure the agent puts on her clients. The smart ones bring someone along who has shopped for homes in the past.
On one show, Sandra, the agent convinced a woman to buy a condo that was outside of her comfort zone by saying her monthly payment would only go up by a small amount. What about the condo fees that will only increase over time? She saw that the buyer had fallen in love with the place and took advantage of the situation. Why wouldn’t she? As Gail said the agent’s living depends on how much commission she can earn.
When house hunting everyone seems to focus on the overall amount of the mortgage and the monthly payment. What agents and bankers forget (?) to discuss with their clients is that the larger house at the top end of their mortgage range will also have higher property taxes, utility bills, insurance premiums and maintenance costs. All these things will only go up over time. It is very easy to become house rich and cash poor. If there isn’t any “play money” left over every month to do the things you love, there may come a time when the excitement you felt when you first bought the house turns to resentment.
September 3, 2009 at 9:20 am
Oh I just saw one of those shows the other day that made my blood boil. It was house hunters I think. I could tell it took place before the crash because the host was talking about how values have increased 30% over the last 3 years (In Phoenix I believe). The parents were both in real estate (poor suckers) and they were trading up their $700,000 3500 sqaure foot home for one that was BIGGER because “the kids need their own space and own bathrooms” (the kids were 9 and 7 and giving each their own bathroom was a necessity!!!!). I wonder if they’ve lost the house?
In my experience, the amount of money the bank was going to loan me was insane!! I had 20% down and the max mortgage I would take out was $250k (to ensure that my 20% was still 20%, lol). The banks gleefully told me that since I only “need” 5% down, I could qualify for a HUGE mortgage. This as a 25 year old just coming into the work force with student loans and a car payment!! I’m so glad I didn’t take them up on it. The first thing I did was cut the monthly payment amount in half and start making biweekly payments in that amount (one extra payment a month). When the rest of my debt is gone, I will up those payments so I can pay this mortgage off as fast as possible!
September 3, 2009 at 9:21 am
Gail, I was also shocked and disgusted watching Sandra talk all those couples into more expensive houses. Often the couples had legitimate reasons for not wanting to buy a house that was the full amount that they were pre-approved for. For examples, couples would straight up tell Sandra that they wanted to still afford to have a life – a perfectly rational explanation! But Sandra won’t hear any of it.
Another couple didn’t want to buy an expensive house, but Sandra talked them into it but turning it into a monthly payment. Once they heard the monthly payment, it sounded more reasonable. They didn’t take into account the interest or amortization, etc. Of course all other expenses are never considered, such as taxes, fees and maintenance, either.
Psychsarah, I think your multi-trait, multi-method approach is spot on. It makes sense for a lot of areas in life too.
September 3, 2009 at 9:33 am
To be fair to Sandra, I watch that show and there have been times when she tells people to not spend more than they are comfortable doing so. Ultimately, it’s the buyers who sign the form. I think also when I watch it, it’s usually young couples who want the detached house, in the great urban Toronto area, with the big yard and mature trees, and want to spend $300,000 and Sandra tries to bring some reality to them while not crushing their dreams. She has two agendas, you know — to sell the house but to make an episode too, though I agree she could ‘vet’ her virgins a little more!
September 3, 2009 at 9:33 am
My fiance and I recently purchased a home in a great neighbourhood and we spent a HUGE amount of time crunching the numbers . There were a multitude of budget spreadsheets put together validating that we can afford the house and continue to live our lives. We also bought knowing that this “asset” may depreciate (heck if the worst of the doomsayers predictions come true we may go into negative equity even though we put 20% down) and what we were really buying is a lifestyle choice. I think that’s something a lot of people don’t consider when buying especially in this era of economic uncertainty.
September 3, 2009 at 9:40 am
About 5 years ago, I took the realtor class in order to get into the booming market. A full 3 months of night classes or 450 hours total. Brings you in perspective of how qualified a realtor who guides you through the biggest purchase of your life might be… So, with my newly earned diploma, I entered the market and… basically went bankrupt in the lapse of a year… How could I be so bad at real estate? Learning the hard way, in real estate : Honesty does not pay.
I found out very sadly that the purchase of a home has little to do with money and that people will blindly trust the bankers who grant an overblown mortgage and assess that amount as their purchase power.
No one wanted to hear from a realtor who blows their bubble telling them the nonsense of a bad deal, the blown value of a house that isn’t worth as much and the fact that in life, interests fluctuates and you cannot base a purchase on the goodwill that life will bring along promotions, better salaries and jobs.
Basically, real estate is a crook’s haven and the purchase of a home for lots of people has more to do with a lovely Arch, a great kitchen or backyard and a neat fire place then with the reality of the monthly payment. I definetly tried to help out, but wasn’t heard. And five years later? I know some of my reluctant customer are back to renting…
As for me, I changed my career path and I am much happier since!
September 3, 2009 at 9:49 am
Ah, the ultimate shopping trip – buying a house. You buy the services of the realtor. You buy your house with money that you buy from a bank in the form of a mortgage. You buy your upgrades. You buy the services of a lawyer to fill out the paperwork. You buy all your taxes. You buy the services of the mover. The list just goes on.
The key thing to remember is that as the consumer you are in control. You should know how much you want to buy before you even begin your search. Don’t get sucked in by banks and realtors whose only role is to sell you something. Banks are selling you money the same way that the big box store is gonna sell you that lawn mower that you will need. And just like the big box store, sometimes the banks put their money on sale to try and get you to buy more. The banks will lower their selling prices by lowering their interest rates, add on incentives like cash back or free services, and like the box stores, offer you more money – increase your mortgage – for the same price (think of bulk buying). Some banks even offer free home delivery of its money by having their mortgage brokers meet you at your home.
Don’t be fooled by the flash though. If all you need is that $200 lawn mower, buy it and enjoy. And if all you need is that $300,000 house, buy it and enjoy. Just know that that bank that pre-approved you for a $600,000 was trying just as hard to sell you something that you don’t need as they girl in the box store was trying to get you to buy that huge riding John Deer lawn mower for your small city lot.
September 3, 2009 at 10:38 am
Almost 7 years ago my husband and I were starting the process of house shopping. Getting our lists of wants and needs prioritzed, and aligned.
The jobs we were working enabled us to qualify for a quite sizable mortgage. BUT… we knew that as soon as we bought the house our incomes were going to drop, so we took that into account and purchased a home for much less than they pre-approved us for. We still ended up getting quite a nice, new build.
We furnished it with what we had in our apartment. We didn’t go all-out and buy new furniture for every room. We’ve just bought what we’ve needed as time went by.
When our jobs took a hit in March and we suffered a 20% cut, we were grateful we didn’t rack up big debt to ‘accessorize’ it. Our home would not be featured on any of those ‘home shows’, but we’re happy with it.
I actually know someone who was on that Property Virgins show. They were not exactly thrilled by the whole experience. The other ‘house hunting’ shows are no better. The only home show I found interesting and informative was “Small Space Big Style”, and that was only for the decorating and space saving ideas. Too bad it’s not on anymore, at least not that I can find.
As for What Not To Wear… their advice is usually spot on, but I have seen episodes where the person being made over has purchased a dress or an outfit that makes me think “what were you thinking?”
Makes me think… “the experts don’t always know what’s best for you”.
September 3, 2009 at 11:03 am
We ran into this too when buying our house. We were lucky enough to have a good estate agent who actually talked us out of buying a house that really was wrong for us (we were so sick of looking by that point we were ready to accept “good enough for now”). And he also reminded us that a bigger house meant higher taxes, and more space to heat, furnish, and clean. He also let us know that we should budget at least 2% of the value of the house in maintenance costs per year. This is a bit different than Gail’s 3-5%, but as the average house price in the city I live in is about $400K, at just 2% we’re still talking an extra $8K/year ($667/month) towards upkeep, much less major renovations and improvements.
I think its a good exercise to sit down and calculate what a home at your pre-approved mortgage amount would actually cost each month—just mortgage payment, maintenance (2-5%), and property taxes. It’s shocking! And all the more so given that you still need to include utilities, food, car, childcare, insurance….and we’re not even at any fun spending yet!
Being house poor sucks. Buy what you need, not what some expert tells you you can–or “should”–afford.
September 3, 2009 at 11:20 am
When we went shopping for our first home in 2002 we were first told we didn’t qualify for a mortgage because my husband was self employed and I was recently out of school. The next person we talked to told us we could afford a mortgage twice what we thought was feasible. The whole real estate process can be quite silly. We decided what we could afford and looked at homes during open houses – we found three we thought would worked and then brought in a real estate agent to tell us what was wrong with them. One house he agreed would be perfect for us – three years later we sold it for a nice profit (lower than what we wanted because the buyer was a single father who really fell in love with our place – and we wanted to help him get his first place). And with the profit we were able to put a nice down payment on the house we plan to live in until we retire.
If you think about what you really want – and make the decisions you can have a very happy ending when house shopping.
September 3, 2009 at 11:42 am
hmmm With reading all these comments I see the possibility of a new reality show. Sort of like a Holmes on Homes, only with not with bad contractors; with bad lenders, bad realtors & bad advise.
September 3, 2009 at 11:53 am
you have a blog!!! very nice. i love watching your show. my daughter likes watching it too. she is 9 years old. she has the little jars, but only two. i hope she will have your sense when it comes to money when she grows up because i sure don’t have much…
question though. will the 2.5x income rule of thumb work out in Vancouver? Or would that rule of thumb be different (even slightly) here?
September 3, 2009 at 12:48 pm
ooo…it’s been awhile since there was a bank bashing post!!…anyway, just for the record clients don’t come in and just get an approval..there is a process and there are many factors taken into account…I have them tell me what they are looking for and then we work with those numbers…and I always factor in their other debt and fixed expenses…sure there are “sharks” out there but there are more of us sensible lenders than not…and property virgins is an American show so their approval system is much different than ours…remember the sub zero lending fiasco…Cdn banks stayed away from that one…we are smarter and we do have more integrity…AND bottom line is that the client is the one accepting and signing…take resposiblity…dont cry that the bank “gave” you too big a mortgage or too much credit…we are more strict these days than in the past with lending but it is a two way street…
September 3, 2009 at 1:01 pm
Great post Gail! You are absolutely right, we need to be in control of ourselves!
September 3, 2009 at 1:13 pm
All our lives we have been mortgage poor. We moved a lot and only once ever made any money on a house. Seemed like we always got the promotion and had to move when the market was a buyers market.
And even those times when it was a company/government move for some reason we always seemed to be disqualified from the buy-out package. Either all or part of it. Once it was because our house sat on 3 acres of land and they would only buy-out up to one acre. They refused to buy our lovely $140,000 country property because we had land but paid $580,000 for a Toronto town house without even any parking! Our house sold in 2 months. The town house was on the market for over a year.
This time we actually used our heads. Thanks to Gail we did the math. We were debt free for the first time and had a 10% down payment so the bank pre-approved us for a ridiculous amount.
We had figured out what 35% for our housing budget should be and it was $60,000 less than what the bank approved. Huh? What math did they use?
We love our little house and never worry about whether or not we can afford the mortgage but you know we nearly got caught again. We told the Realtor what our absolutely top dollar was but made the mistake of mentioning that we had been pre-approved for a ton more. I think we were just bragging. Well, I know we were. He of course took us to see the most gorgeous house ever built that was listed right up to the last dollar of the pre-approved amount. I fell in love and could not stop talking about this house. Wanted it bad and was trying to figure out how to get it. That night I happened to watch an episode of ‘Til Debt and it was like I snapped out of a trance. I got sick 2 years later so thank God every day that we didn’t fall again and are mortgage comfortable instead of on the verge of foreclosure.
September 3, 2009 at 1:17 pm
Property Virgins on HGTV is a Canadian show. The properties they are showing them are mostly around Toronto (area). One of the couples shown, where the man was visually impaired, is the guy who is the “Blind Movie Reviewer” from 102.1 “The Edge” radio station in Toronto. On the topic of mortgages, I wanted to say that one of my ex’s favorite ways to deal with his evermounting debt during our marriage was to roll it into the mortgage every several years when it got renewed. That would take the mortgage back near or up to the max value we could use (80% of the value), leaving him free to run all his credit up again til next time. Needless to say nothing was ever really paid off, only shifted around to disguise how much there was. Since I have been on my own, and taken responsibility for over half of that debt (I know I didn’t have to, but I chose to so he was still able to feed and house our teenage sons) I have learned how to budget, make cuts, choices and priorities, that move me in the direction of my chosing, not getting blown around by the winds of life. Of couse there are always things that come up when you least expect them, but I am getting better at planning for those things too and I am getting the debt paid off slowly. A much better head space to be in! Thanks to Gail and all the bloggers here!
September 3, 2009 at 2:09 pm
oops…pardon…it’s house hunters that is out of the u.s.
September 3, 2009 at 2:10 pm
Banks & Read Estate Agents = Crooks. REAs are not the only options out there. Sites/What-Not like Comfree that charge a fixed fee are alternatives to using them. Those realtor ads actually annoy me because all they are are fear-mongering ads, meant to make you feel insecure in your purchase decision-making process. Really, is this the type of people you want to give your business to?
September 3, 2009 at 2:33 pm
Oh please…banks and real estate agents are not crooks..they are a business like anything else…
September 3, 2009 at 3:33 pm
Agreed. Banks and RA’s are not crooks. They clearly state the rules they use, and it’s up to you to play by them or not. Don’t want to borrow too much? Don’t borrow too much! Not to say that some Bankers or RA’s are not crooks, but they all aren’t. Just as some MD’s might be incompetent, that doesn’t mean all MD’s are quacks.
September 3, 2009 at 4:04 pm
Actually the show only shows 3 houses, but the people usually see more (I have friends who’ve been on it, who shall remain nameless). Actually the funny part is assistants show the houses, she doesn’t – which makes sense because she’s busy. Real Estate agents are only out for themselves, of course (like most capitalists). But Arma making fun of her appearance is not helpful or kind.
September 3, 2009 at 4:08 pm
Ah yes – I remember the banker and real estate agent who said we could afford a huge priced home. Then when we found it, the agent said add $20K above asking and wave the inspection to get it (it was bidding war season). We took their advice and shortly after moving in found all sorts of problems (e.g. ‘a river runs through it’ [$20K later the house was waterproof]; we had to keep the windows open for 2 weeks in winter while we got quotes to replace the illegal venting system/boiler – to prevent the house from blowing up; chimney was falling off, etc.). But hey – an additional $100K in repairs the house is great! But had we known the true cost we may have passed on this property. Thankfully the house has gone up quite a bit in value, so on paper we’re doing fine. Thankfully we rented out the bsmnt flat to help pay for the ‘extras’.
September 3, 2009 at 4:31 pm
“Time and again I try to impress upon people that where you get your advice is an important part of how you weigh that advice.”
That is so true Gail…that’s why I love to come to your blog and learn from YOU!
Unrelated to today’s blog: blog regarding a death of a partner a couple of days ago.
Thank you Sparky! I checked our accounts at the bank re: the survivorship checkmarks and one of our accounts didn’t have them!
Note to everyone here…head to your bank and check this out!
September 3, 2009 at 4:31 pm
yes, letting a third party make huge decisions for you (20k ABOVE and WAIVE inspection?????????)…would indeed be costly…hopefully the lesson was learned…experience is the most difficult teacher afterall, giving the TEST first and THEN the lesson….
September 3, 2009 at 4:33 pm
Doreen I’m sorry to hear of your story, but keep in mind the home inspection is a somewhat cursory review, they might not have caught the potential for leaks.
One option, for those in a bidding war (something I know about, having sat on both sides of the table in bidding wars) is to do a pre-offer home inspection. That way the offer comes in clean, and you get to spend an additional 2.5 hours inthe house by yourself with the inspector. It depends on how accomodating the sellers are, though. We saw our house on a Wed, had the preoffer home inspection Saturday, and offer night was Tuesday. We “won” against 6 other bidders, but at least knew the repairs involved ahead of time.
September 3, 2009 at 5:41 pm
Gail when we went to get pre-approved we knew I was going to stay at home with our baby that was on the way so we just got approved for my husband’s wages so we knew we could afford that. Many people strap themselves and then wonder why they have financial problems. The other thing is just because the bank pre-approves you for that much doesnt mean you have to spend that much but many and most do!!!!!!!!
I also found my real estate agent told us we could spend more than we were pre-approved for too which wasnt good advice.
We ended up buying a house we could afford and allowed me to be able to stay at home with our beautiful daughter till she went to school. We are happy to say that we are almost mortgage free about 2 years left!!!!!!!
Thanks for all your great advice!!!!!!!!!!!!!
September 3, 2009 at 6:14 pm
I really object to this post, and this is why,.
First is that real estate agents, including Sandra Rinamoto, are after different things than Gail is as a financial expert. Sandra’s goal is to get her clients a house that fulfills their goals, ie. good resale value, adequate space, etc. Her goal is not to make sure that their budget balances at the end of the month, like Gail’s is. If a couple comes up to her and says they want a 3 bed, 3 bath, professional kitchen home with land in Toronto proper and are only willing to pay $200000 for it, then yeah, she’s going to tell them that’s not enough, even if that’s only what they can afford, because her goal is to get them the house they want. Her responsibility is to show them both houses in their price range and houses that have what they want, and her clients have to make the decision themselves. For anyone saying that she’s a bad person or bad real estate agent for selling people homes that are at the highest end of their budget is like saying that it’s the responsibility for the cashier at the grocery store to make sure you’re not spending over budget. It’s not. It’s ultimately only YOUR responsibility to say “No, I’m not going to buy that upsale because it’s more than I can afford” or to say “Yes, I am going to buy that upsale and make the change in my budget”.
September 3, 2009 at 6:36 pm
Cassandrasl:
Gail’s point (I assume) is that you do not go to a real estate agent to tell you what YOU CAN AFFORD! The real estate agent should be able to show what is available the PRICE RANGE you want. Sometimes people do need a reality check as to what houses go for because it is not always obvious especially if you are new to town. Gail said to put WEIGHT on the real estate agent’s according to their job status. I would not rely on a financial advisor to tell about the different neighbourhoods of the city unless they lived there!
Weigh the advice from each professional according the manner in which they get paid!
September 3, 2009 at 6:39 pm
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September 3, 2009 at 6:40 pm
Maybe it’s because I’m single, but I found the bank didn’t offer me more mortgage that I could afford, even though I had a large ($100k) down payment. They only pre-approved me for about $180k. I ended up taking $140k and will be done with the mortgage after 5 years (3 gone already) due to prepayments.
September 3, 2009 at 6:44 pm
As far as Property Virgins goes, I’m told the homeowners don’t get anything (ripoff!) but I have no particular problems with the host.
A real estate agent’s ‘victory’ is really just getting you to buy a house that you really want. The budget is kind of up to the buyer.
September 3, 2009 at 7:12 pm
I was blown away with what the banks think we can afford.
We are planning on renting out one or two of the bedrooms in our house (we live in a place with a lot of seasonal workers) for all or part of the year. Obviously our emergency fund will cover a few months of tennant-free mortgage payments, but I struggled with whether or not to factor that into the house we could afford.
jay – good for you! congratulations on having such a large downpayment on your own.
September 3, 2009 at 8:55 pm
I have deleted Armageddon’s (sp?) comment from the site. It was inappropriate and I’ve warned before that this is not a place to be mean. (fingers waving) Buh-bye, Arma, buh-bye.
September 3, 2009 at 11:06 pm
I totally agree with Gail’s “message” in this post: YOU need to take charge .. as a few posters have said previously regardless of what anyone says ultimately you are responsible for the decision you make and it has to be something you are comfortable with
.. while it really sucks to be one of those people who have overextended themselves becuase the bank said they could have that money..all I can say is sorry about your luck..callous..yeah probably but unless the bank outright lied to you about how much you would be borrowing or how much your payments you really have no one to blame but yourself…
Again probably callous to say and I am sure will stir the natives but if you can’t understand the implications of borrowing X dollars and how it fits into your budget or what an amortization schedule means maybe you shouldn’t be a home owner…
used to be that home ownership was a privilege reserved for those who managed their money well and worked hard- I think most people today -especially my generation and the one after me (I am 33) feel that home ownership is a right and banks and mortgage companies have simply captialized on that mentality – hence the 40 year mortgages and zero down payments…
I was shocked at the difference in the process we went through for getting our first mortgage-the hoops we had to jump through to when it came to getting approved – to when it was time to get our second… the bank was literally saying do you want more money for anything? maybe a new vehicle or a trip? I think as consumers we have to realize the product has changed and we have to evaluate it more than in the “good old days”..
September 3, 2009 at 11:07 pm
When I decided to buy a house my broker and I sat down and figured out what price range a home needed to be in to meet the maximum amount I felt I could spend a month (including taxes, insurance, etc). My broker gets work through referral so it is in her best interests to have clients who are happy with her at the end of the purchase. I did ask her what I qualified for (just out of curiosity) and it was nearly double with what I felt comfortable with. I also got a realestate agent through a couple of recommendations and he sent me the neighborhood comparables to review myself. I also would highly recommend an inspection. My house did have some problems but at least I knew that going in and I set money aside to take care of them. Just an FYI, an inspection is equally important on a new house as an old house. My friend who have purchase new homes versus my 60 year old house actually had more problems than I did.
September 3, 2009 at 11:49 pm
[...] Gail isn’t too pleased with our love affair with stuff. [...]
September 4, 2009 at 12:03 am
Very good article. People need to get in the habit of asking how much is this going to cost me over the length of the term vs. how much is this going to cost me monthly. As much as we like to point fingers at banks and mortgage brokers, as consumers it’s our money and it’s up to us to learn how to use it effectively.
September 4, 2009 at 9:56 am
You are so bang-on correct. Right now, everyone is buying because interest rates are absolutely low. In fact, you should be anticipating a large interest rate increase both in the short term and long-term (BOC overnight lending/long term bond) rates.
When that happens, any interest-bearing debt becomes heavier and heavier, becoming much like an anchor around your neck, and that of your family.
Getting rid of debt means living a simple life and BELOW your means. Living within your means is another excuse to spend what you earn. Living below your means makes you happier and healthier, and allows you to sleep well at night.
Our family does it, and we are utmost satisfied not having to ‘keep up’ with the Jones’.
September 4, 2009 at 12:49 pm
I was really interested to see your comments on the Property Virgins show since Ive thought the same thing every time Ive watched it and stopped watching for the same reason. She seemed more interested in getting the inexperienced to spend as much as possible and not what was best for them. I think the recession especially in U.S. has forced many to rethink the life of excess for status and approval. BTW I also would like to see followup shows of your clients 6 mths, 1 yr and more down the road.
September 4, 2009 at 7:00 pm
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September 5, 2009 at 4:11 pm
I am SO glad that this aspect of Property Virgins has finally been outed and discussed. I used to love watching the show and now I can’t stand it. It’s horrible when more and more couples are told by Sandra that an extra “X” amount on the total cost of the house is only a mere “Y” amount of extra dollars a month. While this might be a very worthwhile way to look at things if the extra cost a month will provide you with something absolutely essential (like the difference between a very safe neighborhood and a very scary and dangerous one), more often than not, the extra amount a month that you would be paying goes towards something that is not very valuable (such as a staged house that looks very stylish when you see it). I understand that the idea of the show is how tricky it is to find the ideal first time house, but it is increasingly less substance and more style.
September 6, 2009 at 6:19 pm
Thanks! We recently went through this. We’re in the US. We got preapproved for an amount and the realtor tried her best to get us to spend the whole thing, after all, we’re getting a “free” bonus, right?
We found a house for nearly $20,000 less than we were preapproved for so I feel good about that.
But they also tried to make it a race. “Get it NOW, get it NOW” they said.
September 6, 2009 at 7:40 pm
Hi everyone,
Well I had the home loan man out on Friday night and was SHOCKED at what he said I could borrow.
Single wage in Australia, just under 70k salary, they offered me……
$511,000-
How ridiculous. I told him there was no way I could service a mortgage that big and was looking for something in the region of $200,000-.
He said I was the first person to ever ask for less.
Sarah
September 13, 2009 at 7:27 pm
[...] Gail wrote an interesting post today onYOU Need to Be In Charge « gailvazoxlade.comHere’s a quick excerpt [...]
October 27, 2009 at 3:27 pm
[...] an enormous wealth of information (pun intended). However, I thought that her blog entitled “YOU Need To Be In Charge” contained a very valuable lesson to anyone selling or buying a [...]