How Much Home Can I Afford?
If you're a first-time homebuyer, you likely want to know if you can afford to buy a house and how much you can spend. We give you the answers here.
Creating a Budget
The first step to getting started on the homebuying journey is to create a realistic budget for a new mortgage. As a matter of fact, you should have a budget in mind (and get pre-approved by a bank) before you speak with a REALTOR. A mortgage broker will conduct a review of your finances and credit history to determine your mortgage loan pre-approval. While this may be a good guideline for the determining how much how you can purchase, you must review your budget to determine a comfortable monthly payment.
The general rule of thumb is: you can afford a house that is about three times your regular (and stable) annual income. Example: If you have a dual household income of $75,000, you can afford a mortgage of approximately $225,000. That does not include the other monthly bills (utilities, insurance, etc) that you will have to plan for. Ideally your mortgage and other monthly expenses should be no more than ¼ of your monthly income - meaning you shouldn’t spend more than $1,562 a month on an annual income of $75,000.
Consider Trade-offs
After creating your budget, you may realize that you aren’t able to get everything you want in a home. That’s where trade-offs come into play. In order to have that short drive to the local grocery store you might have to give up the park across the street . Don’t lose hope if you cannot locate the perfect house on the first few tries. That’s the reality of home buying.
If you are not willing to make certain trade-offs, it may be time to increase your budget. The right real estate broker can help you ensure your future home meets (or exceeds) all of your expectations.
Stick to Your Budget
Setting a budget is only one part of the homebuyer journey. The most important part is sticking to that budget. Sometimes that means that you have to pass up your dream home in favor of a starter (or smaller) home, and that’s okay. The joy you’ll feel after purchasing a home that you can realistically afford will be much greater than getting your “dream” right away.
Are you ready to purchase your first (or next) home?
Call 773-904-8256 to talk to an agent.