How Much House Can I Afford?

April 22, 2020

Buying a home is usually the most expensive purchase people make in their lives. It is considered to be a symbol of success which signals to others that you are getting closer to fulfilling the American dream. Knowing that buying a home is a big financial and psychological commitment, finding out how much you can afford should be your #1 priority. To start your home buying journey, you need to be mindful of the following four things:

Establish your priorities

Make a list of your ideal home (features, location, type of property, age, square footage)

Calculate how much you can afford

Know your debt-to-income ratio (most lenders prefer a DTI under 36%)
Determine your down payment
Check your credit score (the higher the score, the lower the rate)
Use a home affordability calculator
Consider how to best allocate your assets

Plans for expenses

Home maintenance (gardening, heating, cooling, etc.)
Moving costs

Have an emergency fund in place

3-6 months’ worth of living expenses
Has 1% to 3% of your home’s value saved for emergency repairs
Hire a professional to inspect the home you are interested in

Having a plan in place can help you establish priorities. If you have additional debt like student loans, it might be best to see if you can prioritize paying those off first before purchasing a home — Keeping a list is always helpful.

Conclusion

If you are a first-time home buyer, knowing all of these four things will help with your home buying journey. You will at least have one foot ahead of those who do not have a plan at all. Focusing on the preparation required to purchase as opposed to the excitement of it can help you stay on budget. “Try to the extent possible to separate emotion and logic,” says Keith Gumbinger, Vice President of HSH.com, an online consumer’s mortgage resource. Once your plan is ready, it is time to start shopping for mortgage lenders. Some lenders are known for being the “Best for” various clients such as first-time home buyers, active military members, and veterans. Read the full article here