A survey on Realtor.com stated that at least 39% of homebuyers in 2020 overspent their original housing budget. If you want to buy a house, be sure to calculate your overall budget, which should include expenses outside the mortgage. Consider the following factors to help you determine what you can reasonably afford.
Consider asking your real estate agent for comparative market analysis (CMA) when looking at houses to buy. This report details how much each square foot costs in a neighborhood, giving you more insight into the property you want to buy.
See if the house you intend to purchase is within the average price per square foot in the neighborhood. Above-average prices may indicate that the house has undergone certain upgrades. Be sure to confirm if the higher price justifies the house’s features.
With a CMA, you can get a better estimate of housing costs in a certain area. This way, you are more likely to stay within your house budget and avoid overspending.
Be sure to calculate property taxes, maintenance costs, and homeowner association fees (if any) when determining your housing budget. What you spend when purchasing a property goes beyond monthly mortgage payments.
Consider the total expenses you would end up having when you purchase your new property. Jocelyn Wright, a managing partner at PF Wealth Management Group, suggests that a range between 25% and 35% of a potential homeowner’s income is ideal for covering total housing expenses.
Understanding your finances is necessary when calculating a budget for your new home. Once a bank suggests a certain amount for your potential mortgage, consider reviewing your finances and expenses on top of the monthly mortgage and determine whether you can afford the house.
Be sure to shop for different lenders when calculating your housing budget. Some lenders may include service fees that affect your overall budget. Meanwhile, other lenders may charge for mortgage points to cut your interest rate on your housing loan.
These percentages may impact your budget as they affect your potential monthly mortgage fees directly. Collect multiple lender rates and analyze their loan prices to be sure you stay within your budget.
Meanwhile, try looking into your incentive qualifications when taking out a loan with any lender. Some lenders may offer first-time homebuyer assistance to help bring down mortgage costs. You could also see if your employer offers similar incentives.
Pay attention to the current interest rates in the real estate market as they can be volatile. Confirm whether the time you chose to buy a house has stable interest rates. You may end up paying a larger monthly payment if the interest rates rise between the time you get pre-approved and when you close your deal.
If you notice constant changes in the interest rates, get in touch with your lender to recalculate your mortgage payment. Calculating your potential payments during a volatile period may help you avoid overspending on a house you initially thought you could afford.
Consider having an emergency fund to cover any unexpected expenses. Based on Wright’s suggestion, any amount saved up apart from your down payment is useful. Emergency funds should generally have between three- and six months’ worth of saved expenses to cover unanticipated fees.
Hidden costs are common, so you should anticipate having to pay extra when purchasing your new home. Consider that your home may require some landscaping and heating budget, which you may not have anticipated if you have been renting a place before owning a home.
Other extra costs that most new homeowners fail to consider include moving expenses and furniture costs. Be sure to factor in potential renovations when getting a new home. Preparing for hidden costs can ensure that you will stay within your budget and you can afford the property entire property that speaks to you.
Conclusion: How Much Can I Afford?
How much you can afford depends on the overall housing expenses you would have to spend. These expenses include principal and interest mortgage fees, housing utilities, and hidden costs once you close your housing deal. Understanding how these factors influence your housing budget can help you avoid overspending.
If you want to fully understand the ins and outs of staying within your budget when buying a house, consider taking a mortgage course for smart home buying. At Wealtheo™, we offer all the essential information you need to understand how to navigate the real estate industry as a homebuyer. Learn more about how your home can be your greatest asset with our mortgage courses.