How Much House Can You Really Afford?

Knowing what you want in your new home is easy: space, location, storage, beautiful curb appeal (come on, admit it, you want to look at your home each day and think “How’d I get so lucky.”), and, we can’t forget the chef like kitchen.

But finding all of those things within your budget can get a tad bit tricky. This is why before you even begin contemplating your housing possibilities – that’s not to say you can’t dream – you should probably determine your budget in order to ensure it fits within your idea of home affordability.

Smart Idea #1 – Approaching It Mathematically

Generally speaking, most lending institutions don’t like to burden potential homeowners with a mortgage if it will exceed 28 percent of their monthly household income, before taxes. Before buying, however, you should also factor in property taxes and mortgage insurance.

Smart Idea #2 – Determining Your Down Payment

Putting 20% down is the magic number. With 20% down you won’t have to shell out more for PMI insurance. 20% down can provide you with comfortable affordability. Keep in mind that you’ll also need to pay closing costs and legal fees, which typically range from 2 to 3 percent of the house’s price.

Smart Idea #3 – Factoring In Your Lifestyle

Maybe you like going out to eat several times a week? Or you have a daily Starbucks addiction (guilty as charged)? Or you like changing your wardrobe to reflect today’s style trends? There’s no harm in that. But if you want to maintain your lifestyle, you will need to factor in these costs.

Smart Idea #4 – Considering Your Future Plans

What I’m suggesting is that you figure out your future plans before you make the leap to homeownership. Plans involving retirement, weddings, college degrees, Europe vacations, and home renovations share one thing in common – they all cost quite a bit of money to make happen.

Smart Idea #5 – Account for Moving & Décor Expenses

Buying a house comes with several big-after purchases. Unless negotiated many homes don’t include appliances other than your oven, stove, dishwasher and built-in microwave. Your washer and dryer as well as refrigerator may need to be purchased new.

The urge to outfit your new home with decorations, paint, linens and furniture may be too irresistible to ignore as well. However, it is extremely important to remember to be frugal, as it is often all too easy to run up your credit cards trying to make your new home look like something out of a magazine.

Moreover, it is important to safeguard yourself against annual household repairs and maintenance costs as well as emergencies, by budgeting 10 percent of the cost of your home for these expenses; along with any other expenses that may unexpectedly arise.

For help determining how much house you can really afford, be sure and check out our online mortgage payment calculator. These smart ideas should be considered when refinancing your existing mortgage as well. If you or your spouse is a veteran or on active duty, and you’d like to learn what refinancing options are available to you, please visit our VA Streamline Refinance page or contact us at 855-351-9522.