How Much Home Can I Afford?
Buying a home is an exciting venture. But when it comes to signing your mortgage, you want to ensure you can live comfortably in your new home without the worry of debt.
Purchasing a home comes with more than a mortgage payment. You need to look at the entire homeownership picture.
Determine Your Financial Stability.
While the bank will tell you how much they’re willing to give you for a mortgage during the pre-qualification process, you should still determine your personal budget. Start by gathering:
- Your gross annual household income (income before taxes and deductions)
- Your total current debt broken down by your monthly payment
- Your down payment amount (This will help you calculate your monthly mortgage payments.)
It’s usually best to keep your total debt payments, including your mortgage, less than 40% of your monthly budget. And keeping debt around the 20–30% range is best.
Remember the Other Home Expenses.
Homebuyers need to be aware of the two most overlooked expenses: taxes and insurance. Typically, taxes and insurance are combined with your premium into a single monthly mortgage payment. Some forget about these costs when they see advertisements talking about a low mortgage premium, or use a calculator that doesn’t factor in these expenses. (Many calculators don’t.)
Before you buy a home, educate yourself by asking questions. Make sure you understand all your options so you can make the best choice possible for your situation. You can get started with the calculator below.