How do you know if a 15-year or a 30-year mortgage is best for you?
The answer depends on a very simple question — How much month do you have at the end of your money? A successful mortgage isn’t only about obtaining loan approval, but more importantly, a successful mortgage should allow you to enjoy your life each month after you make your mortgage payment.
To determine what’s realistic and will work best for you, I will ask you to provide three financial documents:
- Your W-2 and federal tax return from the previous year
- Your current check stub from your employer
But the most important document is… Your current bank statement!
Your bank statement tells a story your credit report doesn’t. For example, a credit report doesn’t typically illustrate your true spending habits and overall budget, while a bank statement reveals spending patterns and transaction types.
Here are a few transaction types I teach our loan specialists to look for when reviewing a bank statement:
- Pre-college school tuition payments
- Spending on fast food, dining out, department store purchases, online and other shopping
- ATM withdrawals
- Utilities bills
When looking at a bank statement, it’s not uncommon to see $1,500 to $5,000 of unwarranted spending, and although on paper you qualify for the 15-year loan, your spending tells me you’re better off going with the 30-year loan.
I’ve seen too many clients say that they want to spend no more than $175,000, but as they start looking I get the phone call, “Greg, can you see about getting us approved for $225,000?” The allure of being a homeowner goes away quickly, but your desire to enjoy life and maintain a healthy budget won’t disappear.
To answer the question about the best loan for you, you need to understand how you spend your money and make an informed decision. My role is to help uncover your spending habits, to exercise candor (something I believe is becoming a lost art in business), and guide you in making this crucial decision that will impact your daily existence.
You can take a long hard look at what sacrifices you’ll need to make with a 15-year loan, or you can accept that you prefer to enjoy certain things in life that you’re not willing to give up and instead go with the 30-year. If you choose to enjoy life and your way of living it, keep doing what you’re doing. Go with the 30-year mortgage and be happy!