How Much House Can I Afford

Maybe you've got a new job or you just got married or maybe you're just thinking about moving out of your old home.  These are just a few of life's little events that have us staring out the window wondering - How much house can I afford?

Buying a New Home

If you find yourself in that situation, you're not alone.  Buying a new home or buying your first home is never easy.  It's a complex legal agreement that usually involves a whole cast of characters including:

• Real Estate Agents to find you a new home or to help you sell your existing home.
• Attorneys to help guide you get through all the legal aspects of buying a home or with the process of closing on a home.
• Lenders / Creditors that are going to help walk you through the financing aspects of buying your home.

No doubt that each of these experts brings a great deal of value to the home buying process.  But there is also no doubt that you're the one paying each of these experts for their help.  That means they're going to try and make this deal sail through as smoothly as possible - which isn't always in your best interests.

But these same experts get to walk away after the closing - you don't.  You're the one that has to make that big mortgage payment each month - so hopefully you can afford these payments.  And if you don't, you can be sure that at least one of these three experts is going to remind you to make those payments on time - or else.

Finding Affordable Homes

We've all got that picture in our heads of our dream homes - but the question that's usually left unanswered is - is that home affordable?  Certainly your lender will gladly help you to figure out what you can afford.  But in the early stages of home buying, most of us just want to get a "feel" for what we can afford, without commitments of any kind.

If that's where you are, then we've got some good news.  We've got an entire section dedicated to buying a new home.  And when it comes to figuring out what you can afford, we've got some great mortgage calculators that can help there too.

Mortgage Calculators

At last count we had something like twenty different mortgage calculators, all designed to meet the needs of home buyers trying to get a feel for what they can afford to buy.  Some of these calculators deal with existing mortgages and rent versus buy decisions.  But of particular interest to those of you trying to figure out "how much house can I afford," we've also got:

• Maximum Mortgage Calculator - This calculator uses two of the industry standards, the rule of 28 and the rule of 32 to calculate the maximum mortgage that you can afford with a given salary or household income.
• Mortgage Qualifier Calculator - This second calculator that we offer that is aimed at answering the "how much can I afford" question.  Again using some assumptions as to your income, property taxes, down payment amounts and purchase price of the home.

Closing Costs

If you've never bought a home before, then you've probably heard all the warnings about closing costs.  Any discussion of home affordability should include a mention of closing fees - because they can be substantial expense.

Here too, we've got two pretty comprehensive guides on this particular topic:

• Closing on a Home - This first article walks you through many of the legal aspects of closing on a home.  It also explains some the more important legal documents you'll be asked to sign at a closing.
• Closing Costs Explained - This second article discusses some of the costs you might encounter at a closing and provides quite a bit of guidance on what you can expect to pay at closing.  This is a good article to read through if you're at the point where your thinking about down payments, PMI and how much money you'll have left after you buy your home.

Affording a Home and Other Commitments

And that last statement brings up an important point.  When you're trying to figure out how much you can afford to spend on a home, you need to think beyond the mortgage and closing costs.  You need to evaluate your total financial needs, especially some of the larger ones such as:

• How much is it going to cost me to make some of the repairs the home needs?  Experts say this can be anywhere from 5 to 10% of the home's value annually.
• How much is it going to cost me to furnish the new home?
• Will I need to buy a new car soon?

So the question goes beyond affording a home, it's really one about your long and short term financial outlook.  And if you're not familiar with budgets and how they can help you organize all these financial commitments then take a look at our article on household budget basics.

Finally, we're going to leave you with a bit of advice - make sure all of your decisions are informed ones.  Play with the calculations, run through some "what if" scenarios.  If you do then you'll be thankful later on because you bought a home you can truly afford.

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