If you are a first-time homebuyer or an experienced buyer, you are most likely wondering how much home you can afford. We suggest you get pre-approved BEFORE you start looking at homes with a realtor or skimming through Redfin or other homebuying resources. Once you get pre-approved, don’t feel like you must buy a home for the full amount you’ve qualified for. We suggest you make a home-buying budget, that is within your pre-approval limit, but something that you personally feel comfortable with. We know it can be tempting to go out of your homebuying budget, but it’s a good idea to stay in it. This way you won’t overextend your budget.
Are you still considering if buying a home is the right move for you?
If you are just thinking about buying a house and you aren’t fully committed, we recommend you use this mortgage calculator to get an idea of what you can afford. A good rule of thumb is to never spend more than 25% of your monthly take-home pay (after tax) on your monthly mortgage payments. That 25% limit includes principal, interest, property taxes, home insurance, private mortgage insurance (PMI) and don’t forget to consider homeowners association (HOA) fees.
Focus on Your Debt-to-Income:
Your debt-to-income also influences your buying power. Your debt-to income ratio (DTI) is your monthly debt payments (i.e. your total monthly housing payment, monthly installment and revolving debt) divided by your gross monthly income (before tax) written as a percentage.
A healthy DTI is 28/36. This means you don’t spend more than 28% of your gross income on your monthly mortgage payments. Additionally, you don’t spend more than 36% on total debt payments which includes your mortgage, student loan(s), and car loan(s), etc.
You’ve been pre-approved, now what? Now it is time to find a realtor that fits your needs. A real estate agent will help you set your expectations when you are touring homes. After you look at a few homes and tell them what speaks to you in a home, they will help you find a home that suits you. Realtors often have access to homes that are “coming soon”, which is a great thing especially in a sellers’ market.
Topics: Real Estate, Mortgages, Home Affordability, Budget, First Time Homebuyer, Housing Market, Buying a Home, Market Outlook, Debt To Income Ratio, homebuying tips, Preapproval, homebuying process, Budgeting to Buy a Home, Mortgages for Millennials, housing payments, Buying Power