BUYING A HOME: DETERMINING THE AMOUNT YOU CAN AFFORD

You have decided to buy a house, choose the best location, and select a home suitable for you needs. It is high time to determine the amount you can afford to purchase your dream house.

You must do the affordability computations yourself when it comes to knowing the amount you need to buy a house. First, you won’t look for houses higher than your price range. Homebuyers are advised to begin looking at the bottom of their price range or even way below the range, and work their way up. And second, you would rather do the estimation than let the bank do it for you. Why? Banks may give you a valuation higher than what you can actually be comfortable paying for. Yes, banks may ask for your major debt obligations such as credit cards and student loans. But they won’t go down to your other expenses, including grocery costs, gas, health insurance premium, and water and electric bills. That way, you want to ensure you do not bite off more than you can chew.

Here are some of the pointers you may follow when figuring out the amount you can afford to spend on your home:

• Find out your take-home pay after tax and other deductions. Looking at your latest payslip, you have an idea on how much money you currently have to spend every month. And that amount can escalate with your homeowner tax breaks.
• List down your household’s recurring monthly expenditures. It pertains to all of the bills your household pay every month. Jot down all of the expenses and note if each item is necessary, necessary but flexible, or optional.
• Take note of the additional expenditures once you become a homeowner. Such expenses depend on the type of house you acquire. In general, you will pay property taxes and hazard insurance. Transportation cost may increase if you will reside in an area far from your workplace. It may be difficult to estimate the costs alone, so ask people who live in your target community or neighborhood.
• Decide on the costs you have to take away. Upon buying a house, you need to ascertain and remove certain expenses such as renters insurance. You can also scale back on other costs to free up additional funds for your home, if needed.
• Figure out the amount you have left after housing expenses. Deduct the take-home pay and expenditures every month to know the amount of money you have for housing every month. Forget not to set aside money for emergency fund, retirement, and the like. In simplest, saving is a non-negotiable expense.
• Determine the purchase price you can afford. You may utilize mortgage payment calculators available online using several monthly payments at different interest rates. The key to accurate computation is to take the current rate for your geographic location and your loan type, then calculate the payment for 0.5% above and below the rate.

Interest rates fluctuate many times a day, and the rates available at the time you acquire your home will impact the amount of house you can afford. Remember, the greater the purchase price, the larger the difference the rate will make. The smaller the rate, the more costly the house can be. Conversely, the higher the rate, the less expensive the house can be.