How Much Can You Really Afford?
A good rule of thumb is that the size of home your can afford is usually 3 to 3 1/2% your annual salary/income. Guidelines suggest that your TOTAL monthly expenses (including your new home) should never be above 45% of your gross (or pretax) income.
For a first time home buyer, we typically recommend for this ratio to be 35% or less for a couple of reasons. First, if this is your first home it will likely not be your forever home. Giving yourself more room in your budget allows for you to save towards your future as well as adjust to the total cost of home ownership. When you are renting, if something breaks you can call the landlord, however, when you own your home you are responsible for the maintenance and you want to make sure that you have enough in your budget to maintain it.
You should always consult with a professional mortgage advisor (not your typical order taker at the bank). Please remember that not all banks or mortgage lenders are created equal. Some banks can be great for your day-to-day banking, but have a reputation as terrible mortgage lenders. Therefore, please ask either us or your friends and family for mortgage banker recommendations. A mortgage banker will advise you and let you know your qualification, how much home you can afford, what your monthly payments will be and what you should expect throughout the home buying process.
Don’t be afraid to buy less of a home than what your mortgage lender says that you can afford. Just because you can buy more doesn’t mean that you are comfortable at that payment cost. Do what makes sense for you, but know how much home you are comfortable with BEFORE going on showing appointments. You don’t want to get your heart set on a home that you cannot afford.
Want to find out what you may be able to afford? Check out the mortgage calculator below!