A house will probably be the most expensive purchase you’ll make in your lifetime and when a wise investment is made, a home purchase can be the biggest source of joy for a family! To ensure that your next home is a blessing and not a curse, it’s important to know just how much home you can comfortably afford. There are several things to keep in mind and we’ll talk about a few of them below:
– Most lenders suggest that the amount of money you spend on your home each month (including your mortgage, taxes, insurance and HOA fees) shouldn’t total more than 28% to 35% of your monthly income. If you have other debt, such as student loans, car loans or credit card payments, you’ll certainly want to stay on the low end of that range. You’ll find online calculators that can help you figure this out by inputting just a few numbers from your monthly budget.
– You’ll also want to make sure that you have enough money month-to-month to cover the maintenance of your home including lawn care and small repairs. A larger emergency fund to cover major repairs like a new HVAC unit and appliances is also necessary. If you don’t have the ability to pay for those items, you may want to consider scaling back on your home purchase so that you’ll have the monthly funds to cover those costs if the need arises.
– Spending too much on your home could put you into a place of stress or feeling like you are missing out on other things you’d rather be doing, like vacation for example. Depending on your stage of life, you’ll want to ensure that your monthly mortgage and other costs doesn’t impede your ability to put money toward retirement and/or college funds if those things are important to you.
– Don’t forget to factor in the closing costs and moving costs. Closing costs can sometimes be up to 5% of the home and can dwindle savings quickly if you’re not prepared to pay those. Asking the seller to help cover those costs or rolling them into your mortgage may also be options to consider.
– Decide on a 15-year, 20-year or 30-year mortgage. A 15-year mortgage will cost you more in the short-term but could save you tens of thousands of dollars over the course of your loan. On the other hand, if a 15-year mortgage will put you in a bind right now, it’s probably not worth the risk you could be taking on; you certainly don’t want to put yourself at risk for not being able to afford the payments at any point while you own the home.
– Once you’ve got a full understanding of your financial situation and know how much you can afford, work with an experienced real estate agent to see what’s available in your price range. A great agent will work to find something that fits your needs AND your budget.
If any of our agents can be of assistance to your and your family during your house hunt this summer or fall, contact us today so we can begin finding the house of your dreams (that still fits in your budget!)