So, How Much House Can You Afford?

You walk through a large, completely updated home, and you fall in love with the open floor plan, crown molding, and granite countertops. You return home and crunch a few numbers, and...no go. It’s well out of your budget.

In your enthusiasm, you put the home-buying cart before the horse.

Lesson learned: Determine how much house you can afford BEFORE you begin looking. You will save time and eliminate frustration. Buying a home, after all, should be an exciting, fun experience.

Calculate Your Expenses

Take the guesswork out of determining how much house you can afford. Calculate all your expenses. The more detailed you are, the clearer understanding you will have about your price range.

How much do you earn per month? Consider all revenue streams – salary, investments, rental property income.
What are your total housing costs, including down payment? This includes property taxes, home insurance, interest rate, mortgage insurance (if you put less than 20% down) homeowner association fees (if applicable), and term of your loan (the 30-year term is most popular). You can estimate property taxes by looking at potential listings and insurance premiums by asking your agent or checking with family and friends they pay.
What are your other monthly expenses? Tally all other known expenses as best you can. Start with food, utilities, gas, car payments, auto insurance, health insurance, cell phone, cable, streaming services, entertainment, and student loans.
Did you forget retirement? Don’t! It is not prudent to sacrifice your nest egg for the future for an extravagant home of the present. Even if it seems like a small amount compared to your other expenses, get into the habit of “paying yourself first” before paying your other bills.

It is also wise to leave a little wiggle room in your budget for unexpected expenses. Refrigerators break down (typically right after you’ve filled them with groceries), and furnaces get fried (on the coldest day of the year).

The Golden Rule: 28/36%

If you remember anything, remember this ratio, 28/36. Cement it in your brain.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.