How Much House Can I Afford?

Buying a home is the biggest financial decision many people ever make. So it’s not a decision to be taken lightly.

Whether you’re moving from a rental to your first house, looking to move out of your starter home, or thinking about buying that forever piece of real estate, you’ll need to have a good sense of your financial situation.

Before signing the dotted line, you want to know your monthly mortgage payment, homeowner’s insurance and property taxes. You need to consider other monthly expenses, like student loan payments, credit card debt, car loans – making sure you can cover them on your annual income along with that new mortgage payment. And that’s just the beginning.

So let’s walk through many of the factors you’ll need to consider before you can answer that all-important question, “How much house can I afford?”

Calculate Your Housing Budget

While it can be tempting to immediately start browsing the listings, the first step in this process is knowing your housing budget. To figure that out, take these into consideration:

• Your monthly income and take-home pay.
• The size and terms of the mortgage loan you’ll take out.
• The size of your down payment.
• The ongoing costs of homeownership.

How Much Money Do You Actually Take Home?

The first order of business when making a budget is to determine how much of your income is available to you.

In general, your salary refers to the full amount you earn (your gross income) rather than the amount you take home (your net pay). There are several deductions taken out of your paychecks for things like taxes, insurance and retirement contributions, depending on your workplace.

When you think about how much house you can afford, you should think about your net pay, because that’s the real number you’re dealing with.

Knowing your take-home pay will help give you an idea about what size monthly house payment you’re comfortable with. You’ll need to factor in other debt payments,…