December 18th, 2014 9:28 AM by Jackie A. Graves, President
Looking at sprawling villas in the suburbs and
2,000-square-foot condos in the middle of downtown is one thing. How much
home you can afford may be entirely different?
Of course, there’s nothing wrong with looking. But when
it comes down to finding a place that fits perfectly in looks, size and
price, you need to know your affordability factor.
What Is Your Family Plan?
It’s not just how much you make; it’s also what you
plan to do with it.
Do your best to anticipate what the next five years or so
will be like for you and your family. Are you planning to have kids in the next
few years? Is your teen graduating from high school? Will they need
you to co-sign for a college loan? Are you planning for a wedding?
All these can raise your debt-to-income
ratio. Even if you can afford a mortgage with a 40% debt-to-income
ratio now, life events like having children can bring that ratio up to and over
Do your best to map out what the next five years or so
will look like and keep an emergency fund for the unexpected.
Plan for the house you can afford today—not what you can
afford a few years from now when the raise kicks in.
What Is Your Payment Approach?
Do you want to plan conservatively, moderately or
aggressively? The difference can determine the type of home within your
For example, if you make $73,000 a year, have a $40,000
down payment, $350 in monthly debts and want to buy a house in Ridgefield, CT,
these are the scenarios to consider:
The conservative approach: no
more than 28% of your income goes to housing expenses and 36% goes to debts. House
affordability range: $303,000
The moderate approach: no
more than 33% of your income goes to housing expenses and 38% goes to debts. House
affordability range: $349,000
The aggressive approach: no
more than 36% of your income goes to housing expenses and 41% goes to debts. House
affordability range: $362,000
The more aggressive the approach, the more budgeting
discipline you need.
You also will need better
credit, as you will be taking on more debt for a more expensive
home. Figure out which works best for you—remember, it’s better to err on the
safe side rather than be strapped for cash each month.
Check out the realtor.com® affordability
calculator to see what spending approach looks like for you in
the area of your choice.
What Is Your Preferred Location?
You might not have the means to afford a house in a
central location. If that’s the case, consider a ZIP code in a neighboring
To get a feel for houses in your price range, use our
affordability calculator for a nearby area and then check the listings at the
bottom of the page.
If you can’t find something you like, you can always go
down in price or continue to rent until you have the means to afford that
What Are Other Homeownership Costs?
Home ownership isn’t as simple as paying the mortgage.
You can be sure other expenses
will pop up.
For example, if you can’t make at least a 20% down
payment, you will need private
mortgage insurance. If you have an FHA loan, you will have to budget
There’s also property tax and home insurance on
top of closing costs. Repairs, general maintenance, condo fees,
utilities and buying new furniture for your new home also need to be
The more thorough you’re budgeting, the more comfortable
you’ll be when shopping for a home.
By: Craig Donofrio | To view the original article click here