How Much Can You Afford?

Before you select a mortgage take a realistic look at your finances, so that you can determine a price range, and what size home you can comfortably afford. Buying a home that fits your budget means your mortgage payments won’t cause you financial stress.

Many people when offered a large mortgage by the bank are tempted to buy homes that are outside of their price range. It’s easy to see why a larger property or a more luxurious home might be appealing, but by reaching too far beyond your means can create disaster! If you’re a new monthly house payment barely fits your budget, you might have difficulty building savings, retirement contributions or an emergency fund. And, without these essential elements of good financial planning its only a matter of time before things can start to unravel.

Here are some tips to figure out how much of a mortgage you can afford:

1. Make a detailed budget that outlines your monthly incoming and outgoings. How much money you really have each month to work with, when considering a new house payment.?Most lenders limit the amount of mortgage they’re willing to offer at no more that 43% of your GROSS income and includes your proposed house payment; all recurring expenses, except for auto, health and life insurance.
2. How stable is your income? Do you have a steady paycheck or are your self-employment income??You’ll most likely need to be employed for at least six months and if you’re self-employed you’ll need to provide a two year income history that will be averaged over twenty-four month to determine your monthly income.
3. What type of safety net do you have if something goes wrong??Your lender most likely will like to see at least two to six months of your proposed house payment in reserves after you close escrow.
4. Is there anywhere you can cut expenses and spend more on your mortgage payment?
5. What will be the total of all costs associated with purchasing the home, including a down payment; closing costs; inspections fees and any other related costs?
6. What are the costs associated with moving?

Once you have asked yourself these questions and taken a close look at your budget, you will be able to determine realistically what you can afford when buying your dream home that meets your budget.

When you’re ready in learning more about home ownership, be sure to visit our local Google+ communities. Then, reach out to any of the real estate agents, mortgage lenders or general contractors ready to assist you on your path to home ownership.

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