How big of a Michigan lake home can I afford?

This is what I do not want you to get in a position of.  Over the years I have seen too many lakefront home buyers over extend themselves when buying a lake home or cottage.  I sometimes see it when they have it for a year or two and then have to sell.  They just can’t afford the payments.  Sometimes it is because they have two different homes and the costs for two homes is too much for their budget.  I see retires having to sell because the mortgage is too much for their retirement years.  I see it across the board of average incomes to the higher white collar workers.  So how do you know what you can afford when buying a waterfront home?  Knowing what you can afford over time will help you.  Like so much of Michigan….. status and what you have or show is sometimes taken as a person’s success or wealth when that may not be true at all.  Just because somebody buys something on credit does not mean they can afford it.  Just because you have a $120,000 ski boat or the $800,000 lake does not mean that you have the reserves to hold onto the home when bad times come.  In our Michigan economy because of the auto industry. we have ups and downs such as business’s closing, layoffs, and job transfers.  In life we get thrown curve balls like health issues, children, and divorces.  These items sometimes affect our financial wealth and what we can hold on to.

So how do you figure a budget for your next lake home purchase?  Years ago the banking industry used 25% and 28% of your income as a guideline for a house payment.  Now the banks look more at the total debt ratio.  Usually the banks, lenders and Fannie Mae like the debt ratio to be 43% of your income and sometimes they will allow it to be 50% of your income if you have high credit scores or cash reserves.  So if you make a combined total income (you and your spouse) of $180,000.   $180,000 divided by 12 months gives you a monthly income of $15,000.  So ideally you do not want your house payment to be more than 28% of your $10,000 monthly income which is $4,200 a month.  Remember this number will include your lake property taxes, home owners association dues, and home owners insurance too.

Let’s say you have a boat payment of $800, car payment of $350, a truck payment of $500, and three credit card minimum payments of $650.  So add those six payments up and it is another $2300 a month in debt.  Add the $2300 to a $4200 house payment you would be right at the guidelines of 43% of your income because the $2300 and $4200 add up to $6500 which is 43% of your monthly income.  So that should be a comfortable living according to the bank.  The bank or lender will usually qualify you for more than you should or want to go.

Yes the dream of lake living and a lake home in South Eastern Michigan is great, but it is smart not to be lake house poor.  You do not want to live for your house.  You want to be able to go on vacations, save for college for the kids, go out to eat and enjoy life with out being buried in debt to a house.  You may not want a $6500 a month house payment because you have not other debt even if it is only 43% of your income.  But it is your right and privilege to buy a house that big.  I want my clients to be able to afford their home in the good times and bad.  I want to see you on the lake even after you retire.  So plan for the long term.  I would love for all of my clients to be able to save money even with their house payments.

So if your lender or mortgage person will approve you for more money that you may comfortably afford what should you do?  How do you figure out what you can afford?  Doing a budget is a good step to take.  Look at your current expenses.  If you are currently making a $2200 a month house payment and wish to upsize your house to a $2800 a month….That is an $600 a month increase.  Try living for 6 months without the extra $600.  Put it into a savings account each month.  You would have an extra $3600 to put down on the house.   Did living without the $600 a month stress you out?  Were you living paycheck to paycheck with out it?  Well then maybe you should lower your house payment so you have more flexible spending money.  You can do the same thing when renting.  Put that extra money that is supposed to be your increase in housing expenses in a savings account.  It will help you determine what you can truly afford.

I hope this home buyer tip of How big of a Michigan lake home can I afford helps you make a sound decision when buying a waterfront property home.  That is the goal.  As your realtor I hope to make your next home purchase a good financial move.

Remember I have a great home buyer bonus.  I do not just give you a little bottle of wine or a small gift basket when you buy with me.  Check out my nice home buyer bonus when you buy and close on a lake house with me.  Call me today on my cell at (248) 310-6239 to get started finding your dream lakefront home.

Get a nice gift when buying a home with Russ

Here is a link to a nice lake in Highland Michigan called Charlick Lake in Oakland County

 

My quote of the day:

Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.

Oprah Winfrey

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