Figure out what you can spend on a home before committing
So you’ve scrimped and saved and are finally ready to plunk down your life savings on the American dream—a home of your own. Given the fact that a house is likely the most expensive purchase you’ll ever make, it’s important to know what you can afford.
Here’s how to figure it out:
Know the magic number. Talk to a loan officer to get an idea of what you can afford. “As a rule of thumb, your total monthly debt should not exceed 41% of your gross monthly income,” says Rose Constantine, Senior Residential Loan Officer at Independent Bank. “As long as your housing payment and other monthly debts are at this percentage or below, you should be okay. You might also want to take into consideration any other debts that might be coming up in your future.” Loan programs can vary, so speaking with a loan officer will ensure that you make the best decision for your situation.
Stick to the number. It’s not a good idea to stretch for a new home purchase, says Constantine. “Unexpected expenses due to the maintenance of the home can come up. It is always a good idea to have money saved and be comfortable with new monthly payments, so you can cover these unexpected expenses.”
Don’t forget other expenses. "Ask the seller or the real estate agent for an estimate of utility expenses for the home," advises Constantine. Figure those into your projections of the total amount you’re comfortable spending. You don’t want to be surprised down the road if utility bills are much higher than what you expected.
Equal Housing Lender