Can you Afford it?

The ins and outs of buying a house

You may think you’re ready to be a homebuyer, but have you done your homework? Buying a house requires a lot of thought and planning especially when it comes to the financial side of things. In the end purchasing a house has to make sense to your financial goals and shouldn’t bankrupt you in the process.

The first step is to figure out what you can afford. You want to get a home that is financially comfortable and isn’t going to put you in the poor house. There are various tools and rules of thumb that will help you get an idea of how much home you can afford. For conventional loans, a safe formula is that home expenses should not exceed 25-30% of your gross monthly income.

Before you start looking for homes you can calculate the mortgage payment for the home in your intended price range. You can also factor in increased expenses (such as taxes, insurance and utilities) that come with a new home. Then you can see what you can afford and also start banking the difference between what you pay now and what it would be to see if this is something you can maintain before you commit.

Depending on your credit and financing, you’ll typically need to save enough money for a down payment – talk with your bank to determine what percent of the homes price you will need. Building your savings is something you should do over and above saving money for the down payment and closing. Your lender wants to see that you’re not living paycheck to paycheck. If you have 3 to 5 months worth of mortgage payments set aside, that makes you a much better loan candidate.

While buying a home is a major financial accomplishment, it’s unlikely that it’s the only one you ever intend to make. What other goals do you have or major life transformations coming up? Break it all down into steps and see how a home purchase will affect your pursuit of these other goals. Become clear on the numbers and prioritize from there.

What ever you do, don’t buy a house based on emotions. If you fall in love with something that’s not best for you, you might end up making some pretty bad financial decisions. There’s a big difference between your emotions and your instincts. Going with your instincts means that you recognize that you’re getting a great house for a good value. Going with your emotions is being obsessed with the kitchen or the backyard. Make sure you’re ready to be a homeowner and that you can afford the responsibilities that go with that. It’s an investment, so stay calm and be wise.


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