How Much House Can You Really Afford?
Looking for a house is one of the most important, exciting, and big things you’ll ever do — and it’s a whole process, for sure. After all, there’s so much to it. From working with a realtor to searching for properties to navigating the lending process; house hunting is a highly involved adventure for everyone.
There’s a lot you need to consider when you’re purchasing a home, and there’s one thing that you need to consider more than anything else — making sure you can genuinely afford the house you’re purchasing. While it’s human nature to get caught up in the dream home search, being smart about your purchase will make life much easier in the long term.
So, if you’re on the house hunt, here are some important things to consider before signing on the dotted line.
At VRM Lending LLC, we think that there’s nothing better than owning a home — but we also always want to approach homeownership responsibly because it can be expensive. See, owning a home means that you’re responsible for every aspect of your property, from the air conditioning units and the water heaters to the lawns and gardens.
Outside of the mortgage itself, you’ll need to account for maintenance, property taxes, and depreciation, too. Considering this along the way is a big deal, and accounting for the extra fees can make a big difference in your finances.
So, how much house can you really afford?
As a rule of thumb, your debt-to-income ratio (i.e., the amount of outstanding debt payments you have compared to your monthly paycheck) shouldn’t exceed around 30-35% of your pre-tax income. This means that your mortgage payment — alongside your car payment, your student loans, and any other debt payments — shouldn’t exceed around 35% of your monthly income at a maximum. If it does, you’ll be financially strapping yourself in a way that makes it difficult to prepare for emergencies, save for retirement, and live a life you really love.
However, this is where it gets tricky — sometimes you will get approved for a mortgage that, while you can technically afford, you shouldn’t. For instance, you may get approved for a $400,000 home… but, when you really look at your finances, you may realize that your safe spot is more around a $300,000 home. This is where you have to ask yourself the following questions:
How much money do I want to have left after paying all of my bills each month?
Do I have at least 3 months of mortgage expenses in the bank?
If I were to need unplanned maintenance, would I be able to pay for it in cash?
Does this house payment support the life I want to live? (Think: travel, savings ability, etc.)
Do I feel comfortable with this purchase?
When you work with the right lender, you can trust that you’ll be making a financial decision that truly makes sense for you and the life you’re living… and want to live. If you’re ready to embark on the mortgage lending process with someone you trust, get in touch with our VRM Lending team. We’ll help you get into a home you love and that you can afford.