I’ve been approved to ruin my life.

Last night I called an old mentor of mine who currently works as a branch manager at a local bank. Girl Ninja and I wanted to get pre-approved for a mortgage for two reasons; a) to make sure we actually qualified for a loan, and b) to have a pre-approval notice on hand for when we find a place we love. Since I knew the branch manager personally we spent about 20 minutes on the phone going over The Ninja household’s financial and personal information. Thirty minutes later, I had a copy of the credit report he pulled in my inbox.

His email started…

You are approved, as you expected for much more than you wish to burden yourselves with…

To which I responded…

Thanks for doing this so quick. Curious what we are “qualified” to borrow? Should give me a good laugh and a heart attack all at the same time.

To which he responded…

You could actually put 15% down on a $500k purchase and be good with both your incomes…don’t go there.

Banks are dumb, but at least this branch manager knows it. They basically gave Girl Ninja and I approval to ruin our lives and stress ourselves out. I couldn’t even imagine having a $500,000 mortgage. There would be absolutely no financial cushion in the event one of us lost our jobs or had to take a pay cut. It’s craziness I tell you, craziness.

But I guess it can’t really be that crazy right? I mean, banks wouldn’t offer these loans if they thought the borrower would default at the approved amount. I guess this just goes to show WAAAAAY too many people are trying to keep up with the Joneses.

Girl Ninja and I are determined to keep our purchase price below $400,000 and hopefully closer to the $300,000 to $350,000 range. This should leave us with a mortgage payment that we don’t have to think about with our dual incomes, and even when the day come that Girl Ninja becomes Stay At Home Mom Ninja, I can still make the payments without much sacrifice. It’s not about the price of the home people, it’s about your monthly payment. Decide what you want to spend ALL IN on housing each month, and then let the numbers tell you how much you can afford.

Wanna know what’s more annoying than the banks approving to loan us more money than they should? You ready for this? It’s probably the most annoying thing I’ve ever come across in my entire life. EVER!!!!

Girl Ninja’s credit score is 40 points higher than mine!

FORTY FREAKING POINTS! How about that for a little piece of humble pie. Haha, I mean I can’t really be mad, my score isn’t terrible at 750, but she’s rocking a 790. Girl Ninja must be flirting with the people at FICO because she has not borrowed as much money as I have, paid back as much as I have, or had as long of a credit history. I thought for sure she’d be the “weaker” link in this scenario, but that doesn’t seem to be the case.

Now that we are approved I guess it’s time to get out there and start walking through homes. We start bright and early Saturday morning. Who knows, maybe by Monday’s post we will have put an offer on the place 😉

p.s. Did you know Seattle real estate is crazy right now. Inventory is as low as it’s ever been (1.67 months). Prices are up significantly over the last 18 months. And multiple offers are a common thing. Of course this all happens when we decide to jump in. Bummer. 

22 thoughts on “I’ve been approved to ruin my life.

  1. I hope you both can stop yourselves from overspending, because there is a reason one house is more expensive than the other. That reason will make you reconsider the bank’s offer of extra money to entice you so borrow more for that nicer home. Do yourself a favor and do NOT look at homes out of your price range of 350k MAX! Otherwise you will hate every other house that costs less for whatever reason. In this case ignorance is truly bliss.

    When I read this article, I thought of you and I 🙂

    http://www.lvrj.com/business/rise-in-las-vegas-housing-prices-tilts-advantage-to-renters-185483951.html

    It sucks being in a sellers market, but I’m determined to do a little lifestyle inflation if it kills me. I keep telling myself that this will be a good investment too LOL.

    Good luck to us both this year.

  2. Use the 500k to feel good that you can afford it, but thats it. I was approved out of college for $420k when I made 42k back in 2005. Crazy!

    Funny you mentioned the credit score comparisons. My wife is about 40-50 points higher too…almost exact scores you guys have. I would have sworn mine was higher! I guess because there is always revolving debt on my credit history since bills are due at different times of the month.

    Good luck!

  3. When my ex-husband and I bought a house 19 years ago, we qualified for almost twice as much of a house as we actually bought. I am glad we didn’t spend as much as the lender said we could. During the last 19 years, my ex was unemployed 3 times. Buying a less expensive house let me work part time when my boys reached their teens. I wanted to be home when they got home from school!! Also, now that we are divorced I can afford the house by myself. My credit score is 804.

  4. I’m surprised lenders are still playing these games when credit is generally so tight. But absolutely agreed that you should not borrow at your upper limit. You have no idea where you’ll be 15-30 years from now if there are kids and other expenses. What if GN has septuplets? or even quintuplets? And don’t forget all your added costs like closing, property taxes, and home maintenance. I wouldn’t sniff at a $200-250K house either.

  5. What will 300-350K get you? Where I live, in Canada where there was no real estate meltdown, you can choose (350K netted 15 properties) a modest 3 bedroom, 2 bath, garage and small yard. The house probably will be 15-25 yrs old and still will need work. Many of these houses are in less than desirable neighborhoods.

  6. I had a similar reaction the first time my husband and I looked up our credit scores together! I was sure mine would be higher as I had both installment and revolving debt and was more “into” PF – but his was higher! It turns out that having your parent add you at 18 to a high-limit credit card does wonders for your score. I was indignant because I felt he hadn’t “earned” his score.

  7. Please house hunt “Say Yes to the Dress” style. Don’t try on a $10,000 dress when your budget is $2,000.

    My friend and her hubs just recently bought a home in San Diego. They’re pretty responsible like you guys (good credit, 20% down payment). They walked into a house OUT of their personal price range (but within pre-approved price) and fell head over heels.

    She said it hurt the heart to have to walk out of there and she was seriously considering putting in an offer for it! She was thinking of reasons to justify the purchase; they worked hard to save, fiscally responsible, make good money, it is within their pre-approved price range, babies! But thank goodness she got her head back in the game.

    They did find a house they loved in their price range. Goodluck, I’m very excited for you and the GN!

  8. People who read personal finance blogs are generally more savvy with their finances. I’ve worked in banking in the US for 7 years and in Canada for just over 1 year.

    Banks manage risk and aren’t concerned with consumers’ budgets. We take into account your gross salaries, outstanding debt and ability to repay. While it isn’t the early 2000’s anymore, if you have decent credit, we’ll give you the max you can afford based on our risk ratios.

    Now, just because we give you a $500K mortgage, it would be unwise to hit that max. It’s similar to being given a $10K credit card limit. Can you max it out? YES! Should you? I’d say NO.

    Consumer credit card debt in the US is still at staggering figures and Canadians are in the same boat. It blows me away when I see credit bureaus with multiple credit cards maxed.

    Banks, just like any other for-profit companies, are here to make money.

    P.S. – I love the name of this blog!

  9. I have a different perspective, I’m onto my second property with my fiancee and in both cases we maxed the crap out of what the banks approved us for. Purposely. We live in a Canadian city on the west coast so property prices are a lot higher than most markets so there weren’t a lot of options if we didn’t max out.

    It was a calculated choice in that we bought a house with a rental on the lower level and it pays half our mortgage. Could we afford the mortgage without the rental? Well it’s certainly pushing it. But we’re willing to take the risk in order to have a home as well as a future investment. When the time comes to look for a new home we won’t HAVE to sell because renting out top and bottom will cover mortgage, taxes, hydro, internet and still leave us some cash in our pockets each month.

    Just wanted to share another choice when it comes to buying a home. I have zero regrets with our decision and would likely max out again next time because the home prices at the top of the range are more likely to hold and increase their value than homes at the bottom. However not everyone plans on selling their home and I can recognize that. It’s all about comfort level, awareness and planning. Don’t assume everyone shouldn’t borrow as much as they are qualified for because for some people it works.

    P.S. We paid $505K for a 4 bed 2 bath 1970’s home in an amazing neighborhood. Reality of the market we live in. It was the newest house we looked at by probably 20 years.

  10. Good luck house hunting! It might be stressful, but I think it will also be fun! And I’d really like to know the process for calculating loan pre-approval… the numbers they come up with seem reckless and arbitrary. You’d think banks would have learned their lessons by now…

    • Like anything, calculated risks is one of the foundations for the financial instruments available for purchase (mortgages, car loans, etc). Banks, like other for-profit companies, don’t change their ways simply because they lose money. They’ll take their losses and try to figure out other ways to leverage their products.

      I’ve seen plenty of banks throw out crazy loans and limits (when I graduated from University, I was offered a $10K limit on a credit card and a $200K mortgage). This is on an entry level $36K salary!

      Here’s my thoughts on how banks look at mortgages internally:

      Depending on the banks, they want your Debt to Income Ratio to be between 28% to 35%. Let’s say your gross salary is $10,000/month and here are your obligations:
      Car pmt = $500, Credit card min = $250, Student loan = $500

      This totals $1,250 for your monthly debt. Your debt to income ratio (DTI) is 12.5% (1250/10000) before the mortgage.

      @ 28% DTI = $2,800 total monthly debt ($1,250 consumer debt + $1,550 potential mortgage)
      @ 35% DTI = $3,500 total monthly debt ($1,250 consumer debt + $2,250 potential mortgage)

      Again, I’m barely scratching the surface on mortgages and everyone’s situation is different. There are a lot of other variables that affect how much you can borrow (i.e. – credit history, scores, time on job, down payment, private mortgage insurance, etc).

      Ultimately, companies have short memories and will continue to make loans to people. I’ve worked in both the prime side (clean credit/+700 scores) and non-prime (marginal to poor/-600).

  11. It’s a good thing for current him owners that can sell, turn a somewhat substantial profit, and take the money they make to build a house that they really want!!!! At least, that’s how we’re looking at it. PEOPLE KEEP BUYING SO WE CAN START SELLING….. In SW Washington.

  12. My wife and I used a mortgage broker recommended by our real estate agent when we bought our house last year. Got us a better interest rate and lower closing costs than were estimated at any of the few banks I looked at.

    Anyway, we got laughed at when we told him the price range we were looking in when we went in for pre-approval in fall 2011. I had a number in mind that I didn’t want to cross in regards to monthly payment, and judging by the manner of his laughter, I’m assuming we could’ve been approved for probably close to double what we got. I have no idea how we would’ve paid the mortgage if the amount were doubled, but I think we definitely had the option.

    A huge chunk of the problem with the housing bubble is that people were assuming banks were telling them what they could afford, rather than thinking for themselves and figuring out that if your takehome is $3k / month, you probably can’t afford a $2500 payment, plus utilities and gas and insurance and food and other living expenses.

  13. Curious what people think about using a Realtor to buy a home?! My wife and I chose not to and we felt it saved us some money (gave us more power to offer a lower price since the owner didn’t have to pay two commissions).

    What are you and the Mrs. Ninja doing?

      • Our main search was the internet. Probably 99.9% of all homes listed with a Realtor have an MLS and are on realtor.com (the other 0.1% may be too fancy for the common man and held back for the realtors discretion. From there we called the listing agent and asked to let us look.

        Prior to visiting the houses we checked out the auditors website of the county the house was in. This provided a guide to how much the taxes were but also the price history of the home (when it was built and what it had sold for at all the previous closings). We could also look at the neighbors home values and recent sales (just like the Realtor or appraiser would!). When we came to look at the house I brought the printouts from the auditors website to make my notes and to show the Realtor that we were informed. There are also websites listing homes for sale by owner if you wanted to go that route.

        We briefly used a realtor to show us two homes one afternoon and had her explain the whole buying process to us. My wife and I were forward with the Realtor and asked what services she would be giving us in exchange for her commission and we simply thanked her for her time and said we would be proceeding without a Realtor. She appreciated us being forward early on instead of dragging her around to look at 30 homes then dump her.

        We are 25 and 28 and we enjoyed our first home buying process! We were able to pay 20% down to avoid PMI and we have an easy mortgage payment of $750. We pay our own taxes (biannually) and insurance (annually). Our house cost about half of what we were approved for.

        One strategy we used and I am not sure if anyone else has tried this but say the house you are looking at is $200K. Go to the bank and tell them you are only looking at getting approved at $198K. The bank will come back and say yes you have been approved for $198K. Then if the market is right in your area and you show the realtor you were approved for $198k and the home has no other offers they will come down…granted we are from Ohio and home prices are quite minimal out this way

        sorry I ramble…just as passionate as our Ninja man!

  14. One thing to keep in mind is that you’ll have quite a bit of expenses when you move in to the house. We spent a good $2000 re-texturing our ceiling and a good $800 on new fixtures, lights, etcs.. Our good friends bought a house this month and they have bought a bar for the basement, put up a fence in the backyard, and bought new furniture. Plan at least $5,000 for the “stuff” that goes in to every new home.

  15. People thought we were crazy for buying a townhouse that was $110K less than our pre-approved amount, but we didn’t want to be house poor. We found a turn-key home 25 min. from work, and we loooove it!! Had we bought in our city, we’d have easily had to spend that 110K to get something almost as nice as what we got, but there would still need work to be done on it.

    HAPPY HOUSE HUNTING!

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