We were out looking for a place of our own. Being REALTORS®, you would think this gives us the upper hand but the reality is, it doesn’t. As we were driving back from a home that our daughter thought would be perfect for us she lamented about all of the considerations we deliberated during the ride home. Alas, we too have a budget to work with and when we added the price of the property with the projected renovations, it would have put us way over budget. In short, the math didn’t lie.
When looking for a property to buy, whether you are buying your first home, upsizing, downsizing, or just right-sizing - one of the important things to consider is to do all of your math.
Review your overall budget, the property costs, and all of the added on costs it will take to make the property comfortable for you. Also, look at the immediate costs that may occur once you have the property – taxes, community/condo fees, repairs, transportation, etc. This will help to understand whether a property is even affordable to you.
Next, consider your mortgage partners in the purchase. If you need to obtain a mortgage, it is important to know that they too will do their math. And what you once thought was a good fit, may not be. In essence, they are looking at it from the perspective of ‘is it a good financial decision for them’. They are not looking at the emotional side of buying a home and ‘can we just make this customer happy’.
Only whether or not the math works.
And it all breaks down to a formula.
First is income from all potential buyers.
Second is cash you are bringing to the purchase.
Finally is value of the home itself.
All of those factors put together will hopefully mesh to equal what you need – a specific amount, at a given interest rate, amortized over a specific number of years.
And if all of the numbers come together, you are able to walk away with a home you love.
However, what if something changes or is not what the bank indicated when they pre-approved you?
What if your income changes? What if the cash to close drops or if the value of the home is not what they expected. Then the mathematical formula changes. That doesn’t mean that you cannot buy the home. It just mean that the equation changes and it’s out of balance.
It doesn’t mean you cannot still buy the home, but something has to change. You can bring more money to the equation, buy a more modestly priced home, or perhaps go with a higher interest rate.
In the end, as much as we would like to get mad at someone and demand they give us the money, it is as my daughter said – in the end the math doesn’t lie.