We know how exciting it can be to start looking for your first home. You’ve finally saved up some money, you have a steady income – now all there’s left is to find the perfect house in Atlanta, right?
Well, not quite. We don’t want to get ahead of ourselves. Doing so can lead to financial mistakes and can end up costing us more in the long run.
The first thing you need to figure out – before you even start house hunting – is how much house you can afford.
4 Steps to Help You Figure Out Just How Much House You Can Afford
Following these steps will help you figure out the most reasonable housing budget.
1. Know and Understand Your Mortgage Lenders’ Ratios
Lending numbers to remember are 28 and 32.
The cost of a home should never exceed 28% of your household’s gross monthly income (your income before taxes).
Additionally, your total homeownership payments – the mortgage, taxes, insurance, etc. – should not exceed 32% of your gross monthly income.
These ratios are called qualification ratios and determine whether a lender will give you money or not.
2. Figure Out Your Monthly Bills and Debt Payments
How much debt do you have? Debt can include vehicle loans, college loans, and credit card debt. All of these will need to factor into your monthly budget. If you can’t afford debt repayments now, adding a home loan won’t make budgeting any easier.
3. Get Number Crunching Help from Your Lender and a Mortgage Calculator
Number crunching isn’t for everyone. In fact, all of the percentages, debts, and homeownership costs can easily overwhelm or confuse most people.
Thankfully, there’s help – just find a mortgage calculator. These calculators help organize all of your financial data and mortgage costs/percentages, and create a monthly mortgage payment estimate.
This is a great tool to help you start planning and saving for homeownership. But when it comes time to buy, talk with your mortgage lender to get more concrete figures.
4. Be Honest with Yourself
This is probably the hardest step of all – especially if you’ve found a house which has all of your must have’s but is out of your budget.
Ask yourself: Can I really afford this home? Can I afford the monthly mortgage payment in addition to my normal bills, the cost of food, and the cost of commuting to work?
If you realize you can’t afford your dream home, you may have to settle for another home or wait a little while to make your big purchase. While this may seem discouraging, just remember sticking to your budget now will give you financial peace of mind down the road.
Make a Promise to Yourself to Stick to Your Home Buying Budget
It can be really tempting to go outside of our budget when we find a house which seems like everything we have ever dreamed of and more. Some people have given into this desire and ended up in major financial trouble.
A lot of people tend to forget the cost of owning a home doesn’t stop once you’ve signed on the dotted line. Homeownership is way more than making a mortgage payment each month.
In addition to your mortgage, you’ll have to pay property taxes, insurance fees, and pay for regular maintenance on your home.
When homeowners don’t factor these costs into their budget, they’re forced to make cuts from other areas of their budget (like vacations, recreation, entertainment, or purchasing a new car).
For some, they’ve ended up having a difficult time affording maintenance on their home, which has lead to the need for costly repairs.
It’s best to stick to your budget right from the very start. We can guarantee this will save you a lot of money and heartache in the long run.
Don’t Let Financial Woes Cast a Shadow on the Joy of Homeownership
The ability to purchase your own home is a privilege not everyone can afford. But the joy we feel can quickly dissipate if we become strapped with financial worries.
Life can throw us some curveballs from time to time, but there’s much we can do to reduce our financial risks. One of those things is to find out how much house we can really afford and then stick to our budget.
Doing this may not seem fun in the moment, but be assured – knowing you can truly afford your home will definitely provide you with peace of mind.
Would you like more information about home loans and how to qualify and stay in your budget? If so, contact us today.
