How Much House Can I Afford?
Deciding to buy a house is one of the biggest decisions you will make. However, determining how much house you can afford can feel like an overwhelming process, because it involves so many variables and moving parts. Figuring out your house-hunting budget involves a combination of expert advice, your own number-crunching and research, and personal preferences—and it is a process that begins well before you start visiting open houses.
Here are five tips to help you determine your house-hunting budget.
Analyze your current household budget
Figuring out your house-hunting budget starts with a deep dive into your current financial situation.
Several months before beginning a search, itemize everything you spend money on in a given month, including larger recurring expenses (e.g., rent, utilities, car payments, credit cards) and smaller purchases, such as daily morning coffee or a Netflix membership.
Figuring out what your cash flow looks like will determine where you might need to trim expenditures as you prepare to start looking. More importantly, having this detailed budget breakdown provides a better picture of your current debt load and ongoing financial responsibilities — both categories that will be especially important as you look into financing.
Use an online mortgage calculator to get a tangible sense of what you’ll need to have saved
Online mortgage calculators are a useful, low-pressure way to get a broad financial overview of what to expect when you buy a house.
Go to the artisansbank.com home page and search for “Mortgage Loan Calculator.” There you can enter different scenarios and predict your monetary responsibility depending on different down payments, property tax amounts and interest rates.
Figure out a list of desired neighborhoods — and survey recent purchase prices
Chances are, you are going into the home-buying search with an idea of where you want to live, based on characteristics such as good schools, proximity to work or restaurants, or walkability. Affording a desired neighborhood can be a different story. A lack of available housing for sale makes certain cities more popular (and expensive), due to simple supply and demand. There are various websites that track median U.S. home listing and sale prices via zip code, segmented on a street-by-street basis, and by price range.
Find a good, reliable Realtor®
A good Realtor® will be plugged into local neighborhoods and trends and be able to help you determine what is realistic, both in your search location, price range and mortgage amount. Once you are ready to buy, a Realtor® can help connect you with a lender so that you can start the process of getting a loan.
And, finally, see how much you can borrow
As a rule of thumb, lenders tend to use the 28/36 rule to come up with a loan amount. Households should spend a maximum of 28% of their monthly pre-tax (or gross) income on a mortgage and other house-associated expenses. They should also earmark a maximum of 36% of monthly pre-tax income on all debts—a category including not just a mortgage, but also student loan and car payments, and minimum monthly credit card payments.
Conclusion
The best way to make sure that all the moving parts match up with your desire to get your dream home is to speak to an expert such as a mortgage lender. They can help you find the best loan for your needs. The lending team at Artisan’s Bank can offer many different types of loans, from the conventional 30-year fixed rate mortgage to an adjustable rate mortgage, as well as VA & FHA loans. Just call them at 302-884-6868 or visit www.artisansbank.com.
