Buying a house is exciting and you probably have ideas about what your dream house will look like and what amenities it will include. However, you may not be able to afford the giant backyard, hardwood floors, or even the second story. Especially if you are a first-time home buyer, you won’t get everything you’ve ever wanted. When looking for a new house, you have to be realistic and ask yourself “How much house can I afford?”
Knowing how much you can realistically buy and pay for is the first step in the buying process. Start by getting pre-qualified for a loan from a lender. The lender looks at your finances, outstanding debts, and other potential monetary concerns to give you an amount that the bank is willing to give you.
Next, look at your take-home pay. The rule of thumb is that house payments (mortgage, taxes, utilities, HOA fees, etc) should account for 25-28% of your monthly income. With this in mind, don’t start looking for houses at the top of your price range. If you max out your finances, you will be left with very little money in the bank. Start with what’s reasonable according to your finances and pre-qualified loan, then work your way up.
Even if you expect some movement in your income, it’s best to make sure you have money in the bank in the short term in case something goes wrong. Being fiscally conservative is the best way to live comfortably, pay your bills, and put money away in savings. Plus, if you get that raise or promotion, put some of that extra money toward your mortgage and pay your house off sooner!
Conversely, you don’t want to make such a conservative decision that you live with less than you really want or need. As a home buyer, you want to be happy with your decision and not experience buyer’s remorse. It may feel like a fine line to toe. As you work through your home buying journey, talk to your real estate agent as well as trusted family members and friends who already own homes. They may be able to provide you with their own home buying experiences and give you some tips.
Ready to start your home buying journey? Get in contact with our preferred lender to get started with your loan pre-qualification.
If you are pre-qualified and ready to start looking at houses, contact our team of local experts to help you.