Are you wondering How much house can you afford? We explain exactly how to break it down!
You might be buying you’re first home, upgrading from a smaller home to a bigger one, or downsizing from your family home. No matter what your situation, it’s so important that you really understand how much you can afford, before you start falling in love with next your dream home.
In this post, we’ll tell you about some past clients who made all the right moves, and offer tips on how to make sure you know what you can afford. Let’s go!
A Retiring Couple
Our clients, Barb and Steve, were planning on retiring and wanted to downsize from their family home to a much smaller, less expensive condo. Of course, retirement should be a relaxed and enjoyable time of life and they didn’t want to be worrying about money. They wanted to continue to be able to afford their golf membership, and to enjoy travel and fine dining well into retirement.
They made a wise decision to sell their home before buying their new condo. Once they knew exactly how much they were going to get for their home, they were able to define the price of the condo they could afford. They bought and moved into their new home and couldn’t be happier with their decision and new lifestyle.
Deciding How Much House Can You Afford:
Barb and Steve did lots of thing right. They accurately predicted their future expenses and they knew how much money they had to play with. Here are some top tips to make sure you don’t overspend.
1. Consider Selling First
If you’re buying and selling, then one of the biggest factors that will decide how much you can afford is how much you sell your existing home for. If possible, try to sell your home first so you’re not guessing how much equity you can afford to put in.
2. Don’t Rely On Your Mortgage Provider
Your mortgage provider is going to pre-approve you for a certain mortgage amount. This, combined with your down payment, will decide the home price you afford. However, this is the maximum amount that you can spend and is based on generic factors. It’s doesn’t take into account factors such as your desired lifestyle, which is a personal choice that only you can define.
3. Factor in All Fixed Expenses
Of course, your mortgage payment won’t be your only monthly expense. Be sure to calculate all other fixed expenses, including property taxes, utilities, insurance, car payments, and anything else you absolutely have to pay on a monthly or annual basis. Will you need help with house cleaning or yard maintenance? Factor in those costs too. For a more accurate picture, you should try to estimate the cost of monthly necessities like groceries and gas as well.
4. Overestimate Renovation Costs
If you’re moving to home that needs immediate renovations, you’ll obviously need to make sure you have enough money to pay for them. It’s important that you’re realistic about these costs. What’s more, you should over-estimate them (by at least 20%) as you never know what could come up.
5. Consider Your Lifestyle Needs
Bills and groceries aren’t the only thing need money for. If your lifestyle involves travel, fine dining, or upgrading luxury cars every couple of years, you should put these into the equation too. Even ordering takeout every couple of weeks can impact how much you can afford to spend on a home.
If you’re a first-time buyer, this may be a good opportunity to start making some lifestyle changes if necessary. For example, perhaps you can eat out once a month instead of once a week. Or you could exercise at home instead of paying for an expensive gym membership. However, don’t forget to be realistic. Living off ramen noodles or cycling to work year-round might not be sustainable.
6. Don’t Forget the Emergency Fund!
It’s easy to forget to underestimate the importance of having some extra cash for unexpected repairs or maintenance. This is especially true if this is your first home or you’re moving to a larger or older property. Be sure not to stretch yourself too much and keep some money in the bank just in case.
Do you need help understanding better how much house can you afford? As always, your ThompsonSells team is here to help every step of the way!
It All Starts With A Home Buyer’s Consultation
Let us help by guiding you through the buying process and ensuring you find the right home at the right price.