Maybe you have a new job, got married, or retired; perhaps the home is too small for a growing family, or too big for empty nesters. These are just a few of life's events that have people wondering: How much house can I afford?
Buying a new home or a first home is never easy. It's a complex legal agreement that usually involves a whole cast of supporting characters including:
No doubt that each of these experts brings a great deal of value to the home buying process. But you're also the one paying each of these experts for their help. They're motivated to make the process go as smoothly as possible, which isn't always in a buyer's or seller's best interests.
These same experts get to walk away after the closing. You're the one that has to make the mortgage payment each month; so they need to be affordable.
Everyone has a picture of their dream home in their mind; but the question that's usually left unanswered is this: Is that home affordable? Certainly lenders will gladly help to determine what you can afford. But in the early stages of the process, most of us just want to get a "feel" for what's doable, without commitments of any kind.
If that idea resonates with you, we have some good news. This website has an entire section dedicated to buying a new home; including a number of mortgage calculators designed just for this purpose.
Every discussion of the home buying process should include a mention of closing fees; because they can be a substantial expense. Depending on the size of the home, property taxes, and points paid, if any, buyers can expect to pay between $5,000 and $20,000 at a close.
Individuals looking for additional information on this topic can find help in the following guides:
When trying to figure out how much you can afford to spend on a home, think beyond the mortgage and closing costs. Evaluate your total financial needs, especially some of the larger ones such as:
The affordability question goes beyond the home; it's really about one's long and short term financial outlook. Anyone that's not familiar with budgets, and how they can help people to make their financial commitments, should take a look at our article on household budget basics.
Finally, we're going to finish up with a bit of advice; make sure all decisions are informed ones. Think about the saying "house rich, cash poor" and the stress that goes along with struggling to make a mortgage payment each month. Play with the calculations, run through some "what if" scenarios; include extreme financial hardships such as what happens if someone in the household loses their job.
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