Before you embark on home buying, you need to establish what you can afford. The truth is that your dream home may be out of your range right now and you need to be realistic when making the purchase decision. The home buying process should begin with you asking yourself how much house you can afford. The fact is that the answer to this question is not as simple as most people would like to believe. While online calculators might have their place, making your decision based on them can be a mistake.
As you begin your search for a new home, consider different factors such as how much you have in savings, your debt load and whether you are planning to grow your family soon. A change in your lifestyle can mean that the monthly payments you considered easy to make in the beginning can become quite a burden. Before you determine how much you can afford for your dream house, think about your current and expected future expenses. The following tips will come in handy.
Get mortgage pre-approval
The first step in the home buying process is getting pre-approved for a mortgage. You need to do this even before you hire a real estate agent, as it will help you to narrow your choices. Speaking to a lender will give you a good sense of the price range you should be looking at. Realtors require a pre-approval before closing the sale. Many people fail to get preapproval before they start shopping for a home and this can mean a waste of time. When shopping for a home, you need to set realistic expectations so that you can find a house within your budget that you will love.
Proper preliminary research
Numerous online resources make it easy to carry out research. You can even get comprehensive loan comparison details to help you get the best mortgage for your situation. Look around at local lenders and remember that getting referrals can be a great way to get information about the best lenders. Talk to your real estate agent or someone trustworthy who can give you some recommendations about the best lenders in the market. This is also the best way to find out the lenders to avoid. Experience is often the best teacher and you can get a wealth of information out there.
Consider what you SHOULD afford
Instead of thinking how much house you can afford, you should consider how much you should afford. Just because you can afford to buy a particular house does not mean that buying it is the best financial decision for you. It is important to remember that the cost of owning a home does not end with the mortgage payment. Think about additional expenses that include taxes and insurance and make sure that after paying the mortgage you will still have money left over for current and future expenses. Most people today are opting for less costly houses to ensure that they have money for more discretionary spending.
What are your debt obligations?
Think about your current and future debt obligations when determining the house you can afford. Most experts suggest that your total debt payment should be less than 36% of your gross monthly income. Think about every debt and that includes car loans, student loans, credit card payments and other debts. Make sure that you confirm your ability to pay the current debts while also considering any debts that you might need in the future. When you deduct your debt obligations, you can find out how much you have left to make house payments and you can shop for low mortgage rates.
What lifestyle do you want?
When buying your home, you need to determine the kind of lifestyle that you want to live. Apart from helping you to look in the right direction or location, this will help you to determine how much money you should pay. Remember that buying a home that you cannot afford can end up being a noose around your neck. Your desired lifestyle will help you to determine where you want to live and how much you can comfortably live on. It is not a good idea to accumulate additional debt while you are paying a mortgage. Make the best financial decision to help you maintain your lifestyle.
When buying a home, think about how long you intend to live in it. This will help you to choose a home that you can afford until you are ready for an upgrade. If you are intending to move out or sell the home after a few years, a long-term mortgage is not a good option. It is also important to determine whether you want to live in the home or to rent it out. If you are buying the property for rental purposes, the money you get from rent payments can help to offset the loan. Determine your goals before you make this huge financial investment and remember that home prices fluctuate over the years.