The busy home-buying season is just ahead. Whether you’re a first-time homebuyer or a seasoned homeowner looking to upgrade or downsize, it’s important to know how much home you can afford to buy.
First-time homebuyers
Before you purchase your first home, you’ll need to determine the mortgage payment range that will comfortably fit within your household budget. Begin by creating a monthly budget that includes your normal living expenses as well as the added costs of homeownership such as utilities, maintenance, homeowner insurance premiums and property taxes. Then determine how much you plan to save each month and add that to your budget. Compare this newly adjusted budget to your monthly income. The difference will be the amount of money each month that you have available for your mortgage payment. To clarify what that really means in terms of purchasing power, many online mortgage calculators can help you translate your affordable payment dollars to a mortgage amount.As a first-time homebuyer you may also want to work with a lending institution to prequalify for a mortgage. This doesn’t obligate you to accept their loan terms, and it doesn’t guarantee they’ll automatically approve your loan. But it’s a good formal first step to investigate the loan amount and type of loan a lender can offer you.
Right-sizing your home
If you’re in the market for a larger home, you’ll want to go through a similar exercise, as for a first-time homebuyer. Doing this ensures you can afford both the increased expenses associated with a larger home as well as the larger mortgage amount.If you’re downsizing, and have little or no remaining mortgage, you may be able to purchase a home for less than the sale proceeds of your current residence. The excess can be added to your nest-egg. If you’re nearing retirement, this may have been your plan all along. A review of your retirement resources may suggest the amount of sale proceeds that you need to ensure your financial security. The remaining amount can be spent on your new residence. A less expensive home may also reduce your monthly living expenses.
Before you fire up your app to begin searching for your perfect next home, be sure to understand the amount you can spend. While there are a variety of factors to consider when purchasing a home, getting the financial aspects lined up first is the best way to begin.
