Wondering How Much House You Can Afford? Live With It.
By Mary Lynn Johnson, Mortgage Lender | Posted: 4/23/19
There are few financial decisions that are larger and more daunting than buying a home. I’ve worked with hundreds of home buyers over the years and one of the biggest questions I hear from my clients is, “How much can we afford?”. There are many factors that go into the “affordability equation”, but the advice I give most often is to live with it for a while. In other words, pretend that you’re making a house payment and see how it affects your finances.
You are currently paying $1,000 in rent each month. Let’s pretend you’ve finally found your dream home. You have money set aside to make a down payment. From there we determine that the home that you are considering purchasing would leave you with a payment of $1,350/mo including taxes and insurance. In this example, I would have you make your rent payment of $1,000 and then put the $350 that you would be paying on a mortgage into a separate savings account, not to be touched. Do this for a few months and see how comfortable you are living on the difference. Are you able to live comfortably or are things getting tight? Are you able to continue to save money or are you just keeping your head above water?
This exercise can pay dividends. Not only will it make you more comfortable in understanding how much you’re able to afford, but you’ll walk away with a little extra money saved. A win-win!
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