Payment Shock Tips When Buying a House

Video Transcript

"Hello! My name is Brett staggs and on behalf of Expert Village, I am going to be telling you what you can afford for a first time home buyer. When applying for your first home loan and you are trying to figure out how much house you can actually afford and you are dealing with someone at a bank or with a mortgage broker, whoever you are working with, fill out your application and start the process. They may say this term to you. They may say payment shock. Payment shock is very simple even though it sounds kind of drastic. All it really is they look at how much you are paying right now for rent, car insurance or whatever you may be paying per month. They look at that number and then they look at proposed monthly expenses you are going to have with your new home and calculate it. If those numbers are hugely different, there is a big space in between so if you are paying $2,000 a month right now and when you get this new house you are looking at and it is going to be $6,000, they are going to say there is payment shock going on here which means if you get this loan, you are going to be paying almost twice as much a month as you are paying now. Depending on your income and on your assets, if they don't support that payment shock, you might be declined a loan. You need to be very aware of how much you are paying each month for any of your expenses and how much your new home you are applying for is going to cost per month. Make sure you see the difference between those two numbers because if it is really great, it is going to be a problem. "