How Much Should You Spend on Your First Home?
As a first-time home buyer, chances are this will be the biggest purchase you’ve ever made, and as such is a must to be sure that the home you choose is one that you can really afford over the long haul. Determining how much you should spend on an Atlanta home for sale, Nashville home for sale, Los Angeles home for sale, or whatever city you are looking at, depends on multiple factors, not just the home’s sticker price. You must consider your monthly expenses, how much you have as a down payment, and what you can comfortably afford for your housing costs every month.
How Much Home Can I Afford?
You’ve probably already played with countless online calculators that take your annual income amount and spit out a number that says you can afford. While these are helpful tools, a good rule of thumb is to multiply your annual income by three or four and this is generally the amount you can qualify for with 20 percent down. For example, if you are making $50,000 a year, you would qualify for a home between $150,000 and $200,000.
Keep in mind that those numbers can be different based on your down payment amount and the type of loan you qualify for. Lower down payment amounts, or FHA loans that require less down, can raise or lower that number.
What are My Housing Costs?
Your monthly housing costs include your monthly mortgage payment, taxes, insurance premiums, home maintenance, and any changes or upgrades you may decide you want or need. Making sure you can include all those costs into that 30 percent gives you some added security and helps ensure you can keep up with your mortgage payments.
Make Sure You Don’t Stretch Yourself Too Thin
When deciding on your first house, it can be easy to fall for a home’s charming looks, perhaps that amazing back porch or beautifully renovated kitchen, but is it really what you need? Can you go with the cheaper home that might require a fresh coat of paint? Chances are the answer is yes. Don’t get lost in what looks so appealing – try to stay focused on what you can afford.
Take into consideration all your additional monthly expenses. Do you have an older car that might need replacing which could result in a new car payment? Do you have additional life events happening, such as marriage, that could create additional expenses? While the 30 percent housing number is a good place to start, don’t leave yourself to the point that one little life event could leave you struggling to make a mortgage payment. It’s almost always better to start off small and as you grow, so can your home.