How Much Home Can You Afford? 8 Tips for Setting a Realistic Budget

Buying a home is a major financial decision, and it can sometimes be hard to know where to start your search. Here are 8 quick tips to help you determine what kind of home options are available to you so that you can find a great home that meets your needs without undue financial strain:

1. Evaluate Your Finances

Assess your income, monthly expenses, and outstanding debts. Knowing your financial picture is the foundation of setting a budget.

2. Calculate Your Debt-to-Income Ratio (DTI)

DTI is a metric that mortgage lenders use to determine how much you can qualify to borrow. To figure out your DTI you can divide your total monthly debt payments by your gross monthly income. Lenders prefer a DTI of 43% or lower.

3. Consider Your Down Payment

A larger down payment reduces the amount you need to borrow and also reduces your monthly mortgage payment. First-time homebuyers can explore assistance programs to help you come up with the money for your down payment. 

4. Factor in Additional Costs

Include property taxes, insurance, maintenance, HOA fees, and utilities in your budget. These can significantly impact your monthly expenses.

5. Follow the 28/36 Rule

As a general guideline you will want to consider spending no more than 28% of your gross monthly income on housing and keep total debt payments below 36% so that you are not overly stretched financially. 

6. Get Pre-Approved

A mortgage pre-approval shows how much lenders are willing to offer based on your credit score and financial situation. You don’t have to feel compelled to borrow the maximum amount, but it is good to know to help decide what kind of a price point you could qualify for. 

7. Use Online Tools

Affordability calculators can help estimate your price range based on income, debt, and down payment.

8. Work with an Agent

A real estate agent can align your budget with properties that meet your needs so that you can balance the things you want in a home with the financial costs that they will entail. 

By understanding your finances and planning carefully, you can confidently buy a home that fits your budget and lifestyle. If you are ready to start your home search give our team a call! We can help connect you with an experienced lender to get pre-approved and start to identify what you are looking for in a home.