Here's a great article from Rob Carrick of the Globe and Mail explaining that one should "never take a lender’s word for it that you can afford a house". I actually agree with him. I ALWAYS think it's a smart idea to make sure you can qualify for your mortgage at a higher rate than the one you're actually paying (and make that higher payment every month instead of your minimum), and that you would/could still pay your mortgage should one of you become sick, or that in additional to what I say you qualify for, you stop for a moment, sit down and write down all of your monthly expenses versus your income to ensure you are doing the right thing before you make an offer on a home.
When a mortgage lender and/or broker qualifies you for a mortgage we must take into account certain expenses such as current monthly debt payments, heating costs for the new home and property tax payments. What do we DO NOT take into consideration? EVERYTHING ELSE. This includes power, cable, daycare costs, car insurance, groceries, home maintenance costs, general child rearing costs, annual vacations, hobbies etc. It goes on and on. These costs really add up and vary widely from person to person and are not even factored in on your mortgage application.
The bank's job, as well as my own, is to ensure you qualify for the mortgage you are applying for based on the lending criteria at the time you apply. It is not my responsibility to ensure you have really sat down and accounted for all the extra expenses in your lifestyle and what if's in life. That is up to you. And, while I think it is an excellent idea, a responsible idea, I cannot make you do it. I can only make suggestions and hope that you think this through. At the end of the day, the onus is on you, the consumer to make responsible borrowing decisions.
Over my years of mortgage brokering I have seen many stressed out couples who have a strained relationship because of financial issues. Finances are the most common source of relationship breakdown and divorce. While we all want a beautiful home and think it will make us happy or complete our family, what is really good for our family and relationship is spending within our means and being in control of our financial lives. In my experience, some home buyers do not want to hear anything other than you are approved and the keys to their new home. They don't want to really think about what happens financially after the home is theirs. Then I see the flip side, with very responsible borrowers who go into this with their eyes wide open, good saving habits and a low debt load.
My advice is to really think this through, have a Plan A and also a Plan B for when things go wrong. Because things do go wrong in life! If you go into this with eyes wide open you'll be better able to handle the added costs of home ownership and can enjoy your new home with as little added stress as possible.
If you have questions about how to prep yourself financially for purchasing a home, please contact me!