We all wish the sky were the limit when it came to buying our home. However, for most of us, that just is not the case. If you are like most people, you still need to set a realistic budget of what you can afford to spend on your next home. In many cases, that means that you will have to compromise in one way or another. However, that doesn’t mean that you can’t buy a fantastic house to live, grow, and create memories in.
If you run a search in Google, you’re likely to find a slew of different answers about how much house you can afford to buy, which will only confuse you. As your real estate matchmaker, I want to break down the home buying budget for once and for all.
YOUR INCOME VS. YOUR DEBT
While many factors can play a role in how much house you can afford, it ultimately comes down to your income and your debt. The general rule of thumb is that all monthly debt, to include your potential monthly mortgage payment, should not exceed one-third of your gross monthly income.
Take Bobby Buyer for example; he brings home a whopping $6,000 per month in gross income. His monthly car payment, boat payment, and minimum monthly credit card payments combine to a monthly expense of $1,200. Based on his monthly gross income of $6,000, Bobby Buyer’s monthly expenses should not exceed $2,000 (⅓ of $6,000) — this affords him an $800 monthly mortgage payment.
Monthly Income Divided by 3 Minus Monthly Expenses = Monthly Affordability
$6,000 /3 = $2,000 — ($1,200) = $800/Mo. Mortgage
The key takeaway here is that your income doesn’t matter if your debt blows it out of the water. In other words, if you are a buyer making a six-figure salary, you’re no more qualified than the average income earning buyer at $50k per year once monthly expenses come into play.
A FEW MORE THINGS…
As mentioned earlier, several factors will make an additional impact on how much you can afford to spend on your next home. Don’t forget to consider these points:
The cost of upkeep – the larger the house, the more expensive it is to maintain.
Large lawns, pools, and detached garages all require additional upkeep and utilities.
Selling your current home may provide additional wiggle room in your budget
The cost of commuting to and from the new house to work, errands, schools, etc..
The age of the house and condition of structural elements like the roof, foundation, heating and air conditioning, plumbing, septic, etc..
Failing to consider these elements could cost you a ton of money and heartache, and leave you completely house poor. However, the right real estate agent can make sure that you wind up in a house that you love, and can comfortably afford.
READY TO GET YOUR VERY OWN REAL ESTATE MATCHMAKER?
If you are thinking about buying or selling a house, or you know someone else that is, you deserve to have the help of your very own real estate matchmaker.
Don’t leave it up to fate or rely on the word of friends and family.
Hire a trustworthy, results-driven real estate agent with the help and support of a third party that only benefits when you do!
So where do we go from here? Get Matched With Your Real Estate Soulmate.
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