You’ve decided to take the leap into home ownership. It’s a big step and you may not even be sure where to start. While it may be tempting to start looking at homes online and start visiting open houses, it’s important to take one major step first; figuring out what you can afford.
Yes, this isn’t the most fun part of buying a home but skipping this step could result in you purchasing a home that you truly can't afford. Here are some things you should do to make sure that you can afford a home before you buy.
DO THE MATH
On average, you should plan on spending no more than 28% of your gross monthly income.
Additionally, most mortgage products require some sort of down payment, which also needs to be included in your housing budget. Plan on saving up anywhere from 3.5% to 20% of the home's overall price for your down payment.
COMPLETE SOME RESEARCH
Before looking at homes, do some research on the area where you are interested in moving. During seller's markets, homes can often go for above what they're priced. Remember this information when you start looking at homes. A home may listed for $250,000, but you could potentially wind up paying more than that in the end.
Just because you ‘qualify’ for a certain amount doesn’t mean you can realistically afford it long-term. During the pre-approval process, a more thorough look is taken at your finances. Based on information such as your salary, debt to income ratio, and credit score, your lender will decide how much money you will be able to borrow.