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Property Virgins question
Ok, so it has been a long time since I was on the Nest, and I've done a lot since I was, including buying a home so I want to clarify something that confused me back then.
I remember back when I used to be on the nest all the time that there was often discussions about shows such as property virgins and house hunters. I remember an outrage of people who watch house hunters because it is staged, and also an outrage of people who watch property virgins because of the approvals.
Even after having gone through the process of buying a home, I still don't get the problem that a lot of people had with this, so I'd really like to understand.
About a year or two ago, there were several discussions about Property Virgins and how many people thought it was absolutely ridiculous and wrong that they would say things like this: John has $20,000 for a down payment and is pre-approved for $300,000, so he can afford a home up to $320,000.
People on this board would say this was ridiculous because the down payment should be included in the amount they are approved for, so I have been quite confused.
When we were buying our home, they said that we were approved to a certain amount, and however much we have saved, we would be able to up this amount. For example, if the bank approved us for $300,000 and we had $100,000 saved up, we could buy a house for $400,000. Does this sound right, or am I missing something? Of course as I mentioned, these discussions I witnessed happened a few years ago on here, and I had also never bought a house so I may be mistaken. I have always just wondered what people we talking about when they said that the math was totally flawed in this show.
Re: Property Virgins question
I understand it as you seem to. You're approved for your loan amount. Whatever you have saved up on top as a down payment is gravy allowing you to buy a home that is your loan + your down payment.
But don't forget you're going to have closing costs, appraisal, inspection and other little things that add up, so don't blow all your savings... keep some.
My goal has always been to blow most of my savings, but keep enough to buy a new car should mine break down.
my read shelf:
Approval amount via a lender does NOT EQUAL affordable amount a buyer can or should spend.
For example, our bank approved us for a $500k home.
We could afford a $320k home based on our budget and what we knew we wanted to save and spend on various things.
All home buying decisions need to be made by the buyers based on their budgets and nothing or no one else.
I agree with PP. I would never advise buying a home at the maximum loan amount a lender will approve someone for. They only take into account income and tradelines that report on credit. Expenses not considered are things like childcare, retirement contributions, groceries, cell phones, cable, clothes, gas in the car, utilities. The also don't know about or consider the fact you might have a car on it's last legs that will need to be replaced, or any hobbies and fun money you budget for. Even worse yet, there is always a chance that you or your SO might lose a job or take a pay cut at work.
If you take a loan for the max you are qualified for, you risk being house poor and miserable.
Ok that makes sense that the amount they approve you for is the amount that they think you can afford. So that means that when they make that big number of what you can afford, they assume all of your assets and savings as well (NOT what my "mortgage specialist" made it out to be at ALL when we were buying a home).
However, when we bought a house it didn't end up mattering because we bought a foreclosure and got an amazing deal and after our renovations can probably make $100,000 or more on it....I've just always loved to watch those house hunting shows and have always been curious about that opinion, so thank you for sharing. I'm just glad that even when we went into buying a home, we were nowhere near interested in spending as much as the bank said we could because we didn't feel comfortable with it.
My problem with the show was always that it seemed like people were getting approved for giant amounts of money and then always looking at the top of that price range. Now If people choose to overspend thats on them, but my issue was more that I felt in many situations the bank was over approving people which is what got us in the housing mess in the first place.
The worst part about that show was honestly how insane the buyers are. With issues like I can't buy this house it doesnt have stainless steel appliances. News flash you can change the appliances once you buy it. I guess thats just the Realtor in me getting annoyed
I am totally new to this forum, so I've never been part of one of those discussions, but that bothered me also when I watched Property Virgins. The example you used above would be true, but if you aren't talking about as big a down payment percentage, it wouldn't. For example:
Let's say Bob is approved for $100,000 and has $10,000 to put down. He can buy a house up to $110,000 right? No, wrong...or at least not necessarily. Typically the minimum down payment required for a conventional loan is 5%. 5% of $110,000 is $5500. If his closing costs are more than $4500, he wouldn't have enough. Probably not often the case, but just saying if they barely have enough to make the 5% down payment, then adding the "down payment" to the top of the approval amount won't work.