There comes a time in every person’s life when they would want to be able to purchase a home. Whether they are getting married, having children, or simply want to put down their roots, living in an apartment may no longer be appropriate for their situation.
That said, it can be difficult to pin down exactly how much money someone needs to purchase a home. A lot of people would like to do more research on what they should be looking for before they ever go into a meeting with a lender, but this is more important than ever — especially in today’s market.
But if you don’t know where to begin, here are some helpful tips on calculating your budget and attainability level so you know exactly what you’re working with before making any decisions.
Your Monthly Income and Expenses
The first step in determining how much house you can afford begins with the amount of money you have coming in and how much you spend. People may think that they can purchase a home even if their monthly income doesn’t meet loan repayments, but this is a very dangerous risk to take in this market.
Start by writing down all of your monthly income, including any bonuses or additional earnings from overtime. Then, add in all of your monthly expenses so you can see exactly what money is left over every month.
To do this, list all of your monthly bills including car loan payments, cable bills, cell phone costs, childcare expenses, groceries, gas prices, and anything else you pay for monthly. Once you have your list made, take away any payments that are one-time costs only, such as buying a new vehicle, and then divide this number by twelve.
This will give you the amount of money that you have for monthly bills and expenses after it has been divided out for the year. Of course, this doesn’t include any money that you would have to put into a down payment for a home.
Your Retirement Savings
Before purchasing a home, it’s important to have an emergency fund in place. This is because it can be quite challenging saving money once you have loan repayments, so it’s smart to prepare for the unknown.
However, loan repayments should not be the only payments that you save for if you plan on staying in your home for any length of time. People may want to save a certain amount every month for retirement, so they know that they have a steady income available to them when they are older.
To determine how much loan you can afford, you will need to calculate your retirement savings. Just like with the loan repayments, people may want to set aside a certain amount every month for this purpose, which should be added to the loan repayments.
This way you can find out how much house you can afford by taking your loan repayments and adding on the number of months of retirement savings.
How Much House You Can Afford
These days, a mortgage broker will often ask for a pre-approval, so they can have a figure to work with when finding the right house. Before going to a broker, it’s important to ensure you have the correct loan amount and repayment plan so you can start looking for a home that is within your price range.
It’s easy to get confused by all the numbers and calculations that are required when determining how much house you can afford. This is why it’s a good idea to look into a home loan calculator that will do all the work for you.
Once you have a ballpark figure of how much you can actually afford, only then should you start looking for a house that matches your budget. You could consult a broker who will also be able to help you with the process, but always be aware of how much loan you are looking for so you don’t get caught up in the excitement of finding your dream home.
As you can see, there is a lot to consider when purchasing a home. Unfortunately, it’s easy to get lost in all the numbers and forget that you need to put yourself first to be happy. So, don’t rush into any decision that you’re not comfortable with.
You still have all the time in the world to find a house that you’ll love and cherish for years to come, so be patient and do your research before taking on a large sum of debt.