Can You Afford A New Home? Here's How You Can Figure It Out
First-time home buyers will often look for houses for sale before knowing how much house they can afford. Even those that think they know often find out they weren't prepared for many of the costs that go beyond the asking price of the house itself. How much can you afford? Here's how to figure it all out.
How Much Can You Really Afford?
The amount of money you will need for a new home can vary widely. A good way to figure out is to do a little math. There's a few pieces of information you will need to start with.
- Yearly household income – All the income your entire household brings in, before taxes.
- Costs – How much you spend every month on debts, bills, and anything else.
- Savings – The amount of money you can put down for your potential home purchase.
After you gather those numbers, you can start to look at different lenders. You'll want to check out their offers and terms.
Try to read the fine print as well, since it's a good idea to add in all the fees and other charges that will come with the loan. Write this information down for a few lenders that advertise rates that appeal to you.
Break out the calculators
You will take all the gathered information, and plug it into a few different home affordability calculators. It's important that you use a few different ones, as they don't all use the same methodologies. If you have a specific lender in mind, they may also have a home affordability calculator on their website.
When you're done, you'll have a very good range to work with. The calculators will let you know what you can afford in the area you choose. They will also tell you how much you can afford to pay on a mortgage each month.
Some even give you a full breakdown of how all the values you entered play a role in the final number. Armed with this knowledge, you're in a far better position to seek a loan.
Padding out the numbers
You also need to factor in additional costs. Some of the calculators may have space for certain costs, which can help with this part. Remember that a mortgage isn't all there is to purchasing a new home.
Take that affordable home price, and tack on an additional 5% to cover other fees, charges, and eventualities. Your new home will come with one-time charges, as well as ongoing ones. Things like insurance, taxes, and home maintenance will never go away.
You may face a lot of different fees and charges during the search, and at closing. Depending on how you go about things, you may have to pay application fees, as well as fees to any professional that helps you in your search and purchase. So keep that in mind.