How Much House Can You Afford?
"How much house can I afford?" Have you ever asked yourself that question and are still wondering the answer? Well, I have the answer for you.
There is no magic dollar amount that you should be looking for regarding the "perfect home". How much house you can afford is as unique as you are; it's based on many factors, including your location, income, savings, personal preferences, and most importantly, the house-buying plan you have in place.
The most ideal way to buy a house is the 100% -down plan. Sounds weird, does not it ?! But think how much fun that would be! Do not borrow money. Period. If I can not get you to postpon the purchase that long, I consistently suggest you save a down payment of 20% or more, choose a 15-year (or less) fixed-rate mortgage, and limit your monthly payment to 25% or less of your monthly take-home pay.
You want your home to be a blessing, not a curse. If you buy a house with nothing down and a huge monthly payment, you're inviting Murphy to move into the spacious bedroom. You do NOT want Murphy as a housemate – believe me! Slow down and realistically think through everything before you jump head-first into making this major purchase. If you do not, you'll just be giving Murphy an open invitation to overtake the house.
Here's a quick checklist of important questions to review as you consider how much house you can afford. If you can not answer YES to these questions regarding the house you have your eye on, then it's not a wise move to buy it right now.
- Can I make at least a 10% (preferably a 20%) down payment?
- Can I keep house payments at or below 25% of my monthly take-home pay?
- Can I afford to take out a 15-year fixed-rate loan?
- Am I working closely with a real estate agent I can trust?