When you are ready to take your first big step as a homeowner, your first question should be “How much can I afford?” If you do a little research and carefully consider your financial potential, you can get into the house of your dreams while simultaneously avoiding the pitfalls that many homeowners made before the housing market debacle of a few years ago.
Before you can calculate how much house is affordable for you, you should figure out if it is affordable at all. Even if you have the money to buy a house, it may not be worth it to become a homeowner if you anticipate relocating within the next few years. And because paying off a home tends to become more expensive if you put forward a small down payment, you will also want to wait if you don’t have money saved up.
Calculate What’s Affordable
But what if you are ready to settle down and you have been saving your money? Now you’re ready to do the math involved with deciding how much house you can afford. Finding one of the best mortgage rates on the market will certainly help you pay off your home more quickly, but the overall driving factor will be your income and how much you can afford to pay. As a rule of thumb, the maximum you should spend on your mortgage payments each month is 28 percent of your budget. This will ensure that you can meet your housing payments without having to stretch in other areas.
Calculate Other Home-related Expenses
- However, your mortgage isn’t the only factor that you should consider when deciding whether it’s time to buy and how much to buy. You will also have to account for one-time expenses such as closing costs on the house and administrative fees associated with signing your mortgage. This usually equals about three percent of the total cost of the home.
- You will also have to budget for other costs like property taxes and home insurance. Most homeowners also like to make sure that they have some money set aside for repairs to fix typical problems such as appliance breakdown and roof leaks, as well as lawn care and outdoor maintenance.
- Though it may not affect how much you can actually afford on a home, you should also consider community factors, such as whether you want to live within city limits, which would lend you the convenience of proximity, or in a quieter suburban area, which many people prefer if they have families. Parents should also research which school district is designated for the area, if any, so that they can choose a home near a school that they will feel comfortable sending their children to.
Ultimately, calculating what will be affordable to you is a balancing act. You always aim to make smart financial decisions but not at the cost of your comfort or the well-being of your family. The best strategy to take is to allow yourself time to weight all of the options.
Guest Post: Leo Fisher is a financial freelancer working alongside Ratesupermarket Canada. He is also a part-time columnist showing consumers the way to develop good budgeting habits by recommending the best tips and resources as well offering expert knowledge on mortgage rates and credit cards.
Image Credit: Freedigitalphotos.net, Photographer: Stuart Miles