So you’re planning to buy a house. You have already made a list of your top “neighbourhoods” and have a clear idea of what style and size of house will suit you best. It’s all so exciting, right? Before you get too carried away, though, it’s a good idea that you take some time to think about the “less fun” part of the process – figuring out how much you can actually afford.
Why Should You Do It?
There are two main reasons why you should have your own affordability calculation.
First, you don’t want to feel a little heartbroken when you look at homes, find some that you really like and find out that you can’t afford them. When you do this, you might build an unrealistic expectation of the house you want to buy and make properties that are actually in your price range look somewhat unappealing. The best approach is to start checking out homes at the bottom of your price range and work your way up!
Second, you want to do your own calculations because the bank might tell you that you can afford more than you’d actually be comfortable paying for. While it’s true that the bank will have your detailed financial information when you submit your mortgage application, it still won’t know some other expenses that could take a huge chunk of your income. For instance, only you would really know how much goes into your gas, your monthly grocery, your health insurance, and others.
To help you out, here is a simple breakdown of the process so you can figure out how much you really can afford to shell out for your home every month:
- Compute the household’s take-home pay after taxes. If you are a two or three pay-check family, then figure out how much each will be contributing to the household expenses every month.
- List down all the recurring expenses including utilities, insurance, gas, grocery, and more.
- Make a separate list for the expenses that you will have to cover when you purchase a new home. This may include homeowner’s association fees, garbage costs, property taxes, and others.
- Determine how much you’ll have left after all those expenses. Don’t forget to allot a specific amount for your savings and emergencies.
- Try mortgage payment calculators to have a rough idea of how much house you can actually buy.
Interest rates change a few times each day and the interest rates applicable at the time you actually made your purchase affects how much house you can afford. IF the purchase price is higher, the difference the interest rate will make will be bigger, too. The lower the interest rate, the more expensive the property you can afford. The higher the interest rate, the less expensive you can afford.
It can all be a little overwhelming, especially if you haven’t done this before. If you feel like you need a clearer explanation before you apply for a loan, don’t hesitate to call Tammy Samuels. Not only can she help you figure out how much house you can afford, she’ll also make sure that you’ll find the best house you can find within your budget!