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How Much House Can I Afford?
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 that you are much 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 aware of the following
1. Establish your priorities
o Make a list of your ideal home (features, location, type of property, age, square
footage)
2. Calculate how much you can afford
o Use the 36%/28% rule
o Know your debt-to-income ratio (most lenders prefer a DTI under 36%)
o Determine your down payment
o Check your credit score
o Use a home affordability calculator
o Consider how to best allocate your assets
3. Plan for expenses
o Home maintenance (gardening, heating and cooling, etc.)
o Moving costs
4. Have an emergency fund in place
o 3-6 months’ worth of living expenses
o Have 1% to 3% of your home’s value saved for emergency repairs
o Hire a professional to inspect the home you are interested in
Having a plan in place can help to establish priorities. If you have additional debt such
as 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 be one step ahead from those who don’t 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 set, it is time to start shopping for mortgage lenders. Some
lenders are known for being the “Best for” with various clients such as first-time
home buyers, active military members and veterans.
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