How Much Home Can I Afford? New Home Buyer FAQ’s

One of the first questions new home buyers ask us is “How much home can I afford?” With today’s great news about low mortgage rates and home affordability, the answer may surprise you.

How Much Home Can I Afford?
1. Focus on Payment, Not Price.

First, let’s focus in on the key element: your monthly mortgage payments. While many home buyers shop purely based off of the price of their new home, the overall purchase price isn’t what hits your checkbook on a monthly basis – while the monthly payments most definitely do. Thanks to today’s low interest rates, the affordability of these monthly mortgage payments has never been higher – meaning you can afford more home for the same money than you could a few years back.

How Much Home Can I Afford?
2. Doing the Math

To get a rough estimate of what monthly mortgage payments fit your budget, start with your monthly household pretax income. Generally, your mortgage payment should be about 1/3 of the amount your household brings in each month before taxes. Next, you’ll need to calculate how much space you have in your monthly budget after other financial obligations. Add up your monthly debt obligations like student loans, credit cards and alimony to make sure you’ll have enough money left over to spend each month – a 40% ratio of debt to monthly pretax income is a good “rule of thumb” to follow.

How Much Home Can I Afford?
3. Other Considerations

Low monthly payments and low interest rates aren’t the only ways you can save money on your new home:

Tax savings. The interest you pay on your monthly mortgage payments is tax-deductible – meaning you’ll be saving money on taxes each time you make your mortgage payment. Closing costs on your home are also tax deductible – and you’ll see both savings within a year of owning your home.

Lower Energy Costs. Your mortgage payments aren’t the only monthly bill that will be affordable in your new home! Owning an energy-efficient new home will save you some serious money. New, green homes are constructed to minimize your monthly energy bills through tight construction, efficient windows and the latest in energy-saving insulation.

Now that you’ve got a better understanding of the monthly mortgage payments you can afford, come in and see us! We’ll help you find a home that fits your budget – and your style.