Buying a home is one of the most exciting steps you can take in life, and that’s why it’s important to prepare yourself as early as possible! Being financially ready to buy a home includes knowing your home shopping budget and your homeownership budget. Here’s how to find out how much home you can afford.
Consider the 28/36 rule
The 28/36 rule states that a household should spend no more than 28% of its gross monthly income (income before taxes and deductions) on total housing expenses and no more than 36% on all debt (including mortgage debt). So, if your household earns $5,000 per month in gross income, that means you could spend $1,400 ($5,000 x 0.28) a month on housing expenses and $1,800 ($5,000 x 0.36) a month on all debt. Of course, 28/36 is only a rule of thumb, so you may be able to spend less or more in these categories depending on your other expenses and your overall budget flexibility.
Know the complete costs of homeownership
Homeownership is often more affordable than renting, especially in the long term. However, it’s important to understand the complete costs of homeownership beyond your monthly mortgage payment. Don’t forget to include homeowners insurance, property taxes, utilities, maintenance and association fees in your budget calculations. A good real estate agent can be useful in helping you estimate these costs for the community where you’re planning to buy.
Get a mortgage consultation
For the final pieces of your budgeting puzzle, you should speak with a loan officer to learn the details of your home financing options. Firstly, your loan officer can help preapprove you for a specific loan amount. Getting preapproved has several benefits, including showing you the maximum home price you can potentially finance. Secondly, your loan officer can show you what monthly mortgage payment amount you can expect and how much cash you’re likely to need for your purchase, including your down payment and closing costs.
When you’re getting ready to buy a home, figuring out your budget is a vital step. We can help you get a more accurate estimate of what you can afford! Get in touch today for a free preapproval and mortgage consultation.
Draper and Kramer Mortgage Corp. does not provide financial planning advice. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for financial planning advice. You should consult your own financial planning advisers before engaging in any transaction.