How Much House Can You Afford?

When considering a home purchase, one of the first things you need to ask yourself is, “How much home can we actually afford?” One quick way to get an approximate answer to this question is to multiply your annual gross income (before taxes) by 2.5. Just for example, if your annual household income is $100,000, you could probably afford a $250,000 home. Other factors will definitely affect this figure, including your credit history and your present debt load. In addition to credit cards and student loans, debt can also include child support, alimony, medical bills, automobile loans and ongoing household expenses.

Lenders usually suggest that your monthly mortgage payment be no more than 25% of your monthly gross income. In addition to preparing for an increased house payment, you also need to consider the expense of closing costs, inspections, moving, and other expenses associated with purchasing a home. For example, the home may require some redecorating or landscaping to meet your needs.

As you consider the house you can afford, make a list of must have features, such as a specific location, number of bedrooms and bathrooms, steps or no steps, size of garage, size of kitchen, style of home, etc. List each feature the home must have.

Second, list features you would like the home to have, such as a basement, patio, deck, walk-in closet, the type of heating or air conditioning, and style of architecture.

Last, consider those features the house must not have, such as location near a freeway, fixer-upper, poor landscaping, etc.

As you begin seriously looking for a home, take the time to decide how much home you can afford and the features you want or don’t want. This will help you focus on those homes that truly meet your needs and your budget. Pre-qualifying with a reputable lender will assure that you are considering homes in the right price range, and the house-hunting process will be more fun and less stressful!