How Much Home Can I Afford?

Homeownership is a cornerstone of the American dream and plays a strong role in our culture’s understanding of success, stability, and family. The question of “how much home can I afford” is one of the most important that many of us face as we make what is likely the biggest purchase of our lives. While shopping for a new home can be fun and exciting, we all have to bear affordability in mind lest our new home becomes a financial millstone. So, how do you answer the question “how much home can I afford?”

There are a number of tools you can use in order to determine how much home you can afford. However, before you do, there are a few steps to take as a preliminary measure. First and foremost, a frank assessment of your financial situation is in order. Your income, your debt to income ratio, your overall debt load, your retirement goals, and your overall financial aims should all be part of this. Write it all down in an organized manner and keep it handy; you’ll be referring to it throughout the process.

Secondly, if applicable you need to have a frank discussion with your spouse or fiance about your plans for homeownership. If you are married, your better half will be as much a part of this purchase as you are. If you are engaged, your fiance’s future and the future of your relationship are intertwined with your potential home purchase. Financial decisions of this magnitude should never be a surprise to anyone involved, so make sure you involve them in every action along the way.

With that out of the way, the next step is to consider the other expenses that may come with homeownership. Beyond down payments, closing costs, and monthly payments, there are several other expenses to consider. Most home purchases involve a fair number of repairs, upgrades, and redecorating projects. You’ll likely need to buy some additional home items to fit your new domicile. All of this adds up and should be taken into account before making a purchase decision. Some of this will be dependent on the condition of the home you purchase and will need to be considered at that time.

Once you’ve done both the math and a brutally honest self-survey, talked with your spouse, and considered what you want in a home, it’s time to do some math. There are many mortgage calculators you can use–Zillow offers an especially popular one–which will help you crunch the numbers and give you an idea of what your monthly payment and mortgage might look like given your current financial situation. It’s important to remember that just because you can afford a given monthly payment doesn’t mean you have to buy that much house. There are good reasons to purchase a less expensive dwelling and direct the saved money elsewhere. Likewise, it’s also a good idea to discuss the matter with your financial advisor and mortgage agent before settling on a given number. Their experience and guidance can make all the difference in illuminating the blind spots along the way to homeownership.