It’s no shocker that overestimating a homebuying budget can discourage new buyers to the housing market.
In fact, it’s a leading reason why 40% of Americans believe not getting a good grip on their housing budget is a big reason why they don’t own a home.
The challenges — and they’re not all that easy to solve — is that buying a house keeps getting more expensive (and while it varies by market, it generally always does) and income can vary. Yes, you may have a stable job right now, but the current economic situation has many Americans on edge and that makes planning even more complicated.
Figuring Out Your Home Ownership Budget
The good news is that homeownership is more doable than many Americans think. The key, home buying experts say, is that it’s just a matter of determining an appropriate budget.
How does figuring out how much house you can afford and still get what you want actually work? TheStreet.com reached out to real estate and money management experts. Here’s what they had to say.
Get professional help. Job one is to talk to a trusted and knowledgeable mortgage lending expert.
“The first step is to speak with a lender to understand the financial consequences of purchasing a home,” said DJ Olhausen, a real estate agent with Realty ONE Group Pacific.
Identify the monthly mortgage payment that works for you. Your next move is to focus on a monthly home payment that works at your unique annual income level.
“Buyers should “net about three-to-four times what their [monthly] house payment is to live fairly comfortably,” said Suzi Daile, a real estate agent with over 14 years of experience at Southern California-based Realty ONE Group.
Make sure to factor in emergency savings. Having a rainy-day fund with any home mortgage budget strategy isn’t a luxury. It’s a necessity.
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“The rule of thumb is to have four-to-six months of cash in reserve for unexpected expenses,” Olhausen told TheStreet.
What’s your timetable? Homebuyers will need to determine how long they are looking to reside in the home.
“If you’re looking for a short-term stay and want to sell the home after moving, be aware of agent fees and loan costs as they can “eat away at your appreciation if you are not in the home long enough,” Olhausen said. “
Factor in external costs. Many people forget all the costs that go into home ownership, and that’s a budgeting mistake.
“It’s not just the purchase price and mortgage payments, remember to factor in taxes, HOA/Condo Dues, insurance, lawn care, pool care, utilities, and regular maintenance, too,” said Erin Sykes, chief economist at Nest Seekers International. “All of those costs should contribute to your estimates monthly payment and thus your comfort level with a potential purchase.”
Know the key factors in determining home budget costs. The buyer’s annual income, the mortgage loan rate, credit health, and time spent in a home all factor into a buying budget. “So does the general economy, future desirability of geography, commute, and proximity to friends, family, restaurants,” Sykes told TheStreet.
Be realistic. Buyers should look in the mirror and be honest with themselves and ask, “does your income support the purchase and your lifestyle?”
“No one wants to be “house poor”, unable to afford other activities, and in an emergency situation or in the worst-case scenario, end up in financial hardship where they can’t afford the monthly payments to end up in foreclosure,” said Broker Kimberly Jay, a real estate broker at New York-based Compass.
Know exactly how much you can afford. A good rule of thumb is your mortgage payment should be no more than 28-31% of your gross income for the month.
“Take into account any other fixed monthly debt payments to determine how much you can afford,” Jay told TheStreet. “Also know that 43% is generally the highest debt-to-income ratio a borrower can have to get a mortgage from a lender.”
Source: https://www.thestreet.com/investing/how-to-know-how-money-money-to-spend-buying-a-home?puc=yahoo&cm_ven=YAHOO&yptr=yahoo