How many houses can I afford?

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Determining how much mortgage you can afford is the first step in buying a home.

Before you jump into that dream home, you’ll want to use either the 28/36 rule or a mortgage affordability calculator to figure out how much you can easily afford. Here’s what to consider when deciding your spending.

How many houses can you claim for?

Lenders will tell you how much money they are willing to lend you after you apply for a mortgage. They assess several factors, such as your:

  • Gross income, or pay before taxes and other deductions
  • Down payment – the higher it is, the more you can borrow
  • Monthly expenses, like car or student loans and credit card payments
  • Credit score – a higher score will usually get you lower interest rates and better terms

Lenders look at not only these factors, but also the costs associated with the home you want to buy, such as property taxes and home insurance rates, to find an amount they are comfortable lending to you. But what the bank will let you borrow and what you have to spend are not necessarily the same thing.

How much should you spend on a house?

A general rule of thumb is not to spend more than 30% of your income on housing expenses. Lenders can use the 28/36 rule, which states that housing costs should not exceed 28% of your gross monthly income and that debt payments – including your mortgage – should not exceed 36% of your gross monthly income. gross monthly income.

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A house should fit your budget, not the other way around. Just because a lender approves a mortgage for you doesn’t mean you have to use the full amount.

“‘Offer yourself’ and ‘qualify for’ are two different things,” says Casey Fleming, author of “Guide to Loans: How to Get the Best Mortgage Possible” and mortgage advisor for mortgage brokerage company C2 Financial Corp. “Most people probably can’t afford what they can expect. The key is whether you can really live on what you have left after paying for your home.”

In addition to the principal and interest on your mortgage, you will need to consider other factors that can influence your home buying budget, such as:

All in all, you may have to take on a lot of expenses that you didn’t have when you rented out, especially if your home will be larger.

“Remember that after buying a home, your housing expenses may increase,” says Cathy Curtis, Founder and President of Curtis Financial Planning, a financial advisory firm specializing in services to women and men. their family. “You can pay more for utilities, you might need new furniture, you might want to hire a gardener, and you will most likely have some home maintenance expenses.

By buying too many homes, you risk not having enough money to cover the unexpected extra costs of owning a home. “I’ve seen a lot of people who push the boundaries and buy the most expensive home they can qualify for and then struggle to make ends meet,” Curtis says.

Why should you use a mortgage accessibility calculator?

A mortgage affordability calculator can tell you how much home you can buy based on your income and expenses, including monthly debt payments.

Typically, you enter your expected interest rate, loan amount and term, plus the down payment, plus HOA contributions and annual insurance premiums and property taxes, to view an estimated monthly mortgage payment. .

Using a mortgage affordability calculator is essential as circumstances vary, even for borrowers earning the same salary. If your annual salary is $ 100,000, but you spend $ 1,000 on monthly debt payments, for example, you can afford less of a house than someone with the same annual salary but only $ 100 in debt payments. monthly.

Mortgage accessibility calculators can also give you the maximum amount a lender could approve, even if you don’t want to use the full amount.

How to avoid being poor at home?

“Poor house” describes homeowners who spend so much of their income on housing expenses that they cannot afford anything else. Buying a home, especially your first home, can come with some sacrifices, but it shouldn’t hurt your financial health.

If paying for your home is preventing you from building an emergency fund, saving for retirement, or pursuing goals and hobbies, you need to keep looking for a more affordable home.

When shopping for a mortgage, you can:

  • Become an informed buyer. Understand your market, including local taxes and insurance rates. Real estate listings can include estimates of these expenses, or you can research with your local property tax assessor and insurance agent. A real estate agent or mortgage professional should also be able to give you a good idea of ​​these costs. Then you will know how much you can easily incur each month for housing expenses.
  • Find the cheapest mortgage possible. Compare lenders to find the lowest interest rates and fees. Bonus: the less you pay to borrow money, the more you have to spend on your home.
  • Consider the Federal Housing Administration or Loans from the Department of Veterans Affairs, if you qualify. These programs could lower your cost of borrowing to help you get into the home you want.

The question of how much house you can afford is not an easy one. Take the time to analyze the factors that affect affordability – income, debt, credit, savings, and spending – to find an answer that will put you in a home you love without straining your budget.

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About Coy Lewallen

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