Buying a house can be a very exciting time, but it is also full of decisions. One of the first things a person needs to understand when they start the search process is their price range. Some people have no clue in the beginning. So how much house can I afford? Here’s a breakdown.
Full budget analysis
The first step towards determining exactly how much money can be spent on a house is to really examine a current monthly budget. People need to be aware of just how much money they spend on a monthly basis right now. Having that exact information is going to allow a person to make smart and rational decisions on a budget for a home.
Most people initially only look at the amount of money they make on a yearly basis. While that information is useful, it doesn’t factor in any additional debt that a person needs to be paying on a monthly basis. Having a car loan, credit card payments and more can all eat into the amount of money that can actually be used on housing.
Set up the right down payment
As one might expect, the higher a down payment, the lower the monthly payment. This is one way to keep a mortgage down as much as possible, but not everyone has a lot of money set-aside in the beginning.
A low down payment means that a person will need to qualify for a larger loan amount to cover the monthly mortgage payment. That can mean a higher interest rate, and additional cost as well. It is highly advised for a lot of people to not purchase a home until they can make a sizable down payment on it.
Examine current payments towards housing
It might seem simple to compare the cost of rent to the cost of a mortgage, but there are some factors to consider when owning a home. When wondering “how much house can I afford,” most people want to stay around the same payment rather than jumping up, because as a homeowner, people will need to pay for things like property taxes, repairs and other issues that come up. When renting, that usually falls in the hands of a landlord.