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.
Post Pre-Approval:
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.
Figuring out how much home you can afford can seem like a daunting task. We are here to help you find the appropriate amount you can afford for your home, whether it’s your first home, or your third. Connect with our team today and we can get you started on your homebuying journey!
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
