Whether you’re a first time home buyer or moving from one place to another, one of the many questions you will ask yourself is “How much house?” When you ask yourself this question, what thoughts run through your mind? (I recommend that my clients keep a notebook and a vision board for their home purchase so there is a physical record of thoughts and ideas as they evolve.)
“How much” means several different things: How much will it cost? How much will the payments be? How much will I spend to live in it? Our brains tend to lump all of these questions together into a concept like “Can I afford this house?”
If you’re like most home buyers, your internal dialog will become clouded with negotiations between your emotional and logical sides. You’ll make promises to yourself to justify a stretch for a home that satisfies your vision of the future. If you have a partner in the transaction, you may find yourself negotiating with them as well. It’s easy to get lost in the ideas and make decisions using inflated rationale as you dream and plan for the future.
This article cannot provide any specific advice as each individual has their own unique financial variables that drive decision-making on a big life event like a home purchase. There are however some good general ideas that can be helpful to everyone that I will outline below:
- Establish a household budget that includes a reasonable amount of savings for home maintenance and repairs. If you’re a first time buyer, you will be better able to determine the amount of mortgage payment you can afford if you have a written estimate of all of your expenses, including the new expenses that come with home ownership.
- Don’t try to buy a home. Buy a house that will make a good home. It’s easy to fall in love with the fresh open spaces and beautifully decorated model homes. Be realistic about your current possessions and how they will fit in the new house, and what you’ll need to purchase to create your vision.
- Determine your absolute maximum housing allowance and avoid overspending. Lenders allow for almost half of a borrower’s income to be used for the housing payment and other debts. This doesn’t leave much room for the rest of life for those in modest income ranges. If you’re a first time home buyer, you will benefit from some help determining an appropriate payment range for your specific personal financial situation. By all means, don’t assume that you can afford the home your lender will approve you for.
There are many costs to owning a home and some of the costs have little to do with the price or mortgage payment. Experienced home owners have knowledge about the costs to maintain a property and are more likely to buy in the conservative end of their qualification range. However there are many justifiable situations that may inspire you to stretch, such as income that is not included in the loan application or savings that could be used to offset the payment if necessary. If you’d like some help determining a reasonable range for your housing payment, request a Price/Risk Analysis from a Foundry Mortgage Home Loan Advisor.