Home ownership is a dream for many people, but also one that seems daunting. Houses aren’t cheap, and there are so many factors you need to keep in mind: the sales price, your savings, mortgage payments, utility bills, moving costs, property taxes, etc. If you’re not a natural mathematician, it’s enough to make your head spin. Even using an online mortgage estimator isn’t always enough.
Slow down. Take a breath. I’m about to walk you through the process of determining how much house you can afford.
Figure out what you have
Before thinking too much about asking prices, it’s important to determine exactly how much money you have to spend. From there you can look for a house that’s already in your budget range, or at least get an idea for how much more you need to save up.
If you don’t already have a high-interest savings account, start one. It’s an easy way to start accruing interest, and it also gives you a place to set aside funds specifically for this purpose. It might seem minor, but watching that number grow little by little is a powerful motivator.
Also, keep in mind not only the money you have, but what you can reasonably expect to make in the future. Consider the reliability of your work situation and try to find a mortgage that you would be able to afford with your current savings even if your future income was interrupted. And don’t forget to keep track of any debts you may have as well.
Figure out what you need
As I alluded to above, remember that you don’t have to go for the biggest, most expensive house on the market. Even if that is your dream house, try to reign in your expectations and maybe even lower them a little. A good rule of thumb is that your total monthly housing costs shouldn’t eat up more than 28% of your total monthly income.
There are a lot of different costs associated with home ownership that need to be taken into account (refer back to the start of this blog for just a few of them), but the most immediate and important ones are undoubtedly your down payment and your mortgage. While a 20% down payment is most common, it’s not your only option. There are many kinds of mortgages, with some requiring down payments of just 3%, 5%, or best of all 0%.
Don’t be afraid to ask for help
If you’re having a hard time keep track of all the options and expenses that come with home ownership, trust me, you’re not alone. Many of us only deal with these questions once or twice in our lives. One of the best pieces of advice I ever received was to seek out an independent mortgage loan originator. Different from a bank mortgage officer, these are people who know everything there is to know about buying a home, and whose concern first and foremost is you.