“How much house can I afford?” is a legitimate question that you should ask yourself if you are planning to buy a home. After all, your future house will be a major life investment. Estimating the price range you can realistically manage is an essential part of the purchasing process.
It’s also a practical idea for you to evaluate if you need a mortgage loan, especially if you currently can’t manage to pay cash for residential property due to your present financial standing. Forbes reports that 86% of home buyers used a mortgage to buy their houses in 2019, based on data from the National Association of Realtors.
Continue reading to discover how much money you will likely need upfront for the actual costs of purchasing a home. These include the down payment, closing costs, moving costs, and other related expenses. Find out how to calculate your future housing costs and how to educate yourself regarding mortgage matters.
These are some of the main expenses that are commonly involved when you buy a house in the U.S.:
The size of your down payment will affect your purchasing power as a home buyer. The higher the amount of your down payment, the lower your monthly mortgage payments will be. In addition to this, you will no longer be required to pay for mortgage insurance if you are able to give a 20% down payment or more.
Closing costs refer to fees that you must pay once you close the deal on your new home, aside from the down payment. Such costs typically range from 2% to 5% of the loan amount. These expenses may potentially include legal fees, title insurance, appraisals, etc.
Moving costs are largely comprised of professional mover fees. The total mover expenses normally range from $835 and $2,241, based on an estimate from HomeAdvisor. These amounts are usually inclusive of professional rates between $25 to $50 per mover, plus the use of a rental truck.
Other housing expenses that you may incur when you purchase a house are property taxes, homeowners association fees, mortgage insurance, and homeowners insurance.
Keep these factors in mind when you calculate the total amount you can afford to pay when you buy a home:
Take your personal or combined income into account, based on which one you will utilize to pay the down payment, mortgage payments, and other costs. Your total income will make an impact on your purchasing power.
In one sense, the higher your income is, the higher the amount you can afford to pay. However, it will also depend on the portion of your income that is already allotted for other loan payments.
According to Bankrate, many financial advisers recommend that you follow the 28/36% rule. They advise that people should not spend more than 28% of their gross monthly income on housing expenses. They also advise individuals not to spend more than 36% of their income on total debt expenses. The rule serves as a basis for what you can afford to pay for your house.
The payments you are making on other types of loans may have an impact on your home buying ability as well. These include your regular payments for personal, student, credit card, or car loans, especially if the payment period is still scheduled to last for 10 months or more.
While it is possible for you to make manual computations, it’s a smart idea for you to use a mortgage calculator so you can save time and effort. You even have the option to print out the computation results with the help of this handy online tool.
You can discover the answer to the question “How much house can I afford?” if you boost your knowledge on home and mortgage matters. With the help of experts, you can educate yourself on how to strategically purchase a house, obtain the right mortgage loan, and refinance your mortgage plan. Buy Wealtheo’s mortgage courses on our website today.