One of the most common questions people have when they set out to buy a new house is “How much home can I afford?” Knowing the answer to this helps narrow down your search, not just by price, but even by city, community and neighborhood. So, how much home can you afford? You need to know some numbers first.
Income and Debts
The first thing you need to know is how much money you have that could go towards a mortgage payment. You need to know your total income, whether you live alone or have a spouse or partner. This includes tips, commissions, salaries, investment income, child support, alimony and any other money you receive on a regular basis.
Once you determine your income, you need to subtract your debts. This might include student loans, credit card payments, car payments and child support. Do not include rent or mortgage payments that you will not pay once you move into a new home. Most lenders prefer that your debts do not exceed approximately 36 percent of your income.
Down Payment
You also need to know how much of a down payment you can make on the home. Of course, the bigger it is, the more home you can afford. Just be sure to make a realistic down payment. If you have $30,000 in savings, you may want to pay $25,000 and hold a little back for repairs and moving costs.
Other Numbers to Consider
While knowing your total income minus your debts and your down payment total can go a long way in deciding how much money you can comfortably spend on a home, there are other costs that might increase or decrease your numbers. Obviously, you have the interest rate on your loan and estimated property taxes you will need to pay, as well as the length of time you choose for your loan terms.
You also have insurance payments. Lenders usually require you to purchase homeowners insurance. Even if they do not, you probably want to take out a policy anyway in the event of a fire, storm, burglary or injury that takes place at your home. New homeowners who make a small down payment, usually less than 20 percent, may have to buy mortgage insurance that protects the lender if your loan defaults.
If you buy a condo or a home in a subdivision, you may be required to pay homeowners association dues. The amount of income taxes you pay can also play a role.
Are you curious about how much home you can afford or do you already know? Whatever your budget, Atlanta Fine Homes Sotheby’s International Realty can help you find the home of your dreams. Contact us at 404.237.5000.