How much do you have?
The first question to ask yourself when trying to figure what you can and can’t afford is simple enough: how much money do you have? Consider both the amount of your income and the reliability of that income. Look at your savings and, if you don’t already have one, open up a dedicated savings account to start accruing interest. Finally, don’t forget to factor in other potential monetary sources, such as investment returns, gifts, inheritances, bonuses, and tax refunds.
How much are your expenses?
Once you know how much money you have to spend, subtract from that amount all those things other than housing that you regularly spend it on. Examples include basic utilities like water, heating, and electricity, gas, car insurance, phone and internet services, groceries, and recreational activities. All but that last one are hard to cut down on, so consider the money spent on those things as being spoken for. Remember that having a mortgage doesn’t replace such costs; it only adds to them.
How much do you owe?
Among the biggest obstacles any would-be homeowner will face is debt. In addition to eating into your available funds, debt also brings down your credit score, reducing the amount of loan and lender options available to you and just generally making the whole process of getting approved for a mortgage a lot harder. If you prioritize anything while saving up to buy a house, reducing your debt as much as possible should be it.
How much is your down payment?
A conventional mortgage loan usually requires a down payment of 20%, but can go as low as 3% if you’re willing to pay for private mortgage insurance. That said, there are other types of loans that require down payments of comparable amounts or even no down payment at all. Examples include FHA loans, USDA loans, and VA loans. To find out what mortgage loans you may be eligible for, considering scheduling an appointment with an independent loan originator.
How much will you pay later?Once you’ve made your down payment, you’re far from finished. In fact, you’ve only just begun. Not only will you need to know how much your mortgage payments will be (a mortgage estimator can be a big help here), you’ll also have to take into account other homeowner expenses, such as property taxes, insurance, inspections, repairs, etc. Also note that while utility bills don’t count as a “new” expense, the amount you pay as a homeowner may be considerably more than what you paid previously.
