There is no denying that buying a home is a thrill. From creating a wish list to daydreaming about the memories you will make in a future home, there are many exciting aspects … and nothing can put a damper on that enthusiasm quite like talking about finances. Still, there’s no way around it: Buying a home is one of the biggest investments most people ever make. Having a clear sense of how much money you can spend—and want to spend—is an essential step.
Buying a home with a partner can add another factor to the equation, considering that partner likely will have their own goals and expectations. As you get a firm sense of your own financial standing and get into alignment with your partner, here’s a conversation formula that will help you diffuse stress and find a path forward.
- Do individual financial assessments
- Respect personal money stories
- Find a common goal
Here’s how to get started so you avoid surprises and minimize stress:
Begin by assessing individual financial situations
Before coming to the table for a conversation about buying a house, you first need the full picture of your financial situation. This is not a time when ignorance will be bliss! Gather up-to-date information on your credit score, your existing debt, and your savings. Then begin assessing whether you have the power to change any of those elements for the better before entering the housing market.
Specifically, mortgage lenders will consider your Debt-to-Income Ratio (DTI), which compares how much debt you have versus how much you earn on a monthly basis. As a general evaluation of how risky it is to loan money, this is an important figure for mortgage lenders. In general, the lower the percentage, the better—but you’ll almost always need a DTI of less than 50% to qualify with a lender.
To calculate your DTI, add up your minimum monthly payments for required and recurring expenses, such as car loans, student loans, credit card bills, child support payments. Don’t include changing expenses like utility bills, grocery bills, or clothing purchases. Then divide the sum of your minimum monthly payments by your monthly gross income. To convert that figure to a percentage, multiply by 100.
If you have questions about personal finance factors like these, it’s easy to get answers through the One Tap to Live Experts feature from Rocket Mortgage® by Quicken Loans®. With real mortgage professionals available to chat online or by phone seven days a week, you can develop a game plan to keep your homeownership goal on track.
Discuss personal money stories
Ultimately, your home-buying budget won’t just involve your earnings and debt. You likely also will need to account for your relationship with money and your savings goals for the future. When you’re buying a home with a partner, there can be another layer of complexity as everyone has unique histories with money. Built through a lifetime of personal experiences, an individual’s “money story” is essentially how spending or saving affects that person on an emotional level.
For example, someone who grew up in a home where bills often weren’t paid may have a scarcity mindset around money and will value saving. In contrast, someone else with a similar background may develop a different mindset and derive joy from spending money. These money stories affect us all in different ways but are especially important considerations when it comes to investing in a home.
Start the conversation with respect and awareness that the other person’s relationship with money may be different. A few questions that can improve your understanding of your partner’s money story include:
- If you had money to spare, would you save for retirement or spend it now?
- What is a past expense that felt worthwhile or fulfilling?
- When you think about earning money, do you feel anxious or confident?
Manage goals and expectations
With a newly refined sense of your practical and emotional financial situations, the final step is honing in on what that all means for your home-buying budget. You can quickly get a sense of what you would be approved to spend by plugging your information into the home affordability calculator on the Rocket Mortgage® website, which will adjust for mortgage rates, down payments, and even ZIP code. Prospective home buyers will benefit from knowing this ultimate top line—even though many decide to set their personal max budget below this number.
Then there is the aspect of expectations: By having a conversation about lifelong financial goals, you can determine how buying a house will fit into that picture—and find a budget that feels right to everyone involved.
Finally, be sure to draw up that wish list. After all, there is plenty of fun to be had through this process!
Ready to get started? Rocket Mortgage® is ready to help. Tell us a little bit about your goals and we’ll help you take the next step.
The post Use This Formula for Low-Stress Conversations About Money appeared first on Real Estate News & Insights | realtor.com®.