Everyone knows a great rule of thumb when buying a home: Don’t buy a home that costs more than you can afford. But what is “affordable” will vary from buyer to buyer. As of December 2020, the median sales price for a new home was nearly $ 355,900, which means that some people will pay a lot more and others a lot less. However, discovering the sweet spot of affordability requires more than obtaining a pre-approval letter from a mortgage lender.
The 28% Rule Can Get You Started
One of the easiest ways to budget for a home purchase is with the 28% rule, which dictates that your mortgage should not exceed 28% of your gross income monthly. Mortgage lenders look at a potential borrower’s debt-to-income ratio when deciding whether to lend money, let’s say your monthly mortgage payment is $ 1,000 per month, and your other expenses are $ 1,000. So, your total monthly financial obligations are $ 2,000. Let’s say you have a gross monthly income of $ 6,000. That means your debt-to-income ratio is 33%.
Housing Costs Beyond the Mortgage
Pre-approval of a home loan is an important first step in buying a home, but it is only a consideration. A mortgage isn’t the only recurring expense – home ownership comes with many other ongoing costs that buyers can expect. This includes home insurance, ancillary costs, repairs, and maintenance costs. Maintenance can only add up: mowing the lawn, shoveling snow and raking leaves. Buyers should also consider property tax.
These expenses can significantly increase your monthly expenses and make a home that seems affordable on paper really expensive. So, you need to consider all of these costs, as well as other regular expenses when determining how much housing you can afford. Your journey from rent to own homes province is made easier with us because we help you identify your budget.
Choose Property that you can Manage
When considering a home’s affordability, first-time buyers should consider the property’s condition and size. Because big isn’t always good, especially when heating and cooling are beyond budget. A quaint home on a scenic hillside might be a dream come true, but cleaning up that long, steep driveway during the winter months could be an expensive nightmare. You could also find that 3,000-square-foot top fix that seems super cheap until you find out you need to renovate every room in the house.
Check the utility bills for the property you are considering and ask a home builder to estimate the cost of repairs, if any. If you plan to do it primarily yourself, be realistic about what you can handle, both in terms of capacity and time.
Homeownership can quickly turn into a nightmare if they miscalculate their purchase. First-time buyers, in particular, have many desires, often more than they can actually handle. They must ensure that the home they are buying is affordable by considering more than just the monthly mortgage payment. Without some foresight, they can be huge but without cash, leading to all kinds of financial problems. Take the time to enjoy your dream before signing it and shake hands with us to identify your budget for your dream journey!!
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