“How much house can I afford?” is one of the most important questions a first-time buyer can ask. The answer should be based on more than the maximum loan amount for which you might qualify.
A sustainable home budget should leave room for everyday expenses, savings, emergencies, repairs, and future goals.
Calculate the Complete Monthly Housing Cost
Your total housing cost may include:
- Mortgage principal
- Mortgage interest
- Property taxes
- Homeowners insurance
- Mortgage insurance
- Flood or other supplemental insurance
- Homeowners association dues
The monthly principal-and-interest amount shown in a mortgage calculator may therefore be lower than the amount you will actually need to pay.
Consider Your Other Monthly Obligations
Review recurring payments such as vehicle loans, student loans, credit cards, personal loans, childcare, utilities, subscriptions, transportation, food, and medical expenses.
Then determine how much you want left each month for:
- Emergency savings
- Retirement contributions
- Travel and entertainment
- Home maintenance
- Unexpected expenses
Your personal comfort level may be lower than the maximum amount a lender is willing to approve.
Plan for Upfront Costs
Your down payment is not the only money required to purchase a home. You may also need funds for inspections, an appraisal, closing costs, moving expenses, initial repairs, and reserves.
Closing costs commonly vary based on the home price, loan program, lender, property, and location. The CFPB advises buyers to estimate roughly 2% to 5% of the purchase price, excluding the down payment, as an early planning range. Actual costs may be outside that range.
Prepare for Ownership Expenses
Homeownership can introduce expenses renters may not currently pay directly. These can include appliance replacement, landscaping, pest control, plumbing repairs, roof maintenance, and higher utility bills.
Building an emergency fund before closing can reduce the risk of relying on credit cards when something needs attention.
Frequently Asked Question
Should I use the full amount shown on my preapproval letter?
You are not required to shop at the top of your preapproved range. Choose a price and payment that support your complete financial plan.
Talk to RateStop
RateStop can help you understand how different purchase prices, down payments, and loan structures may affect your estimated payment. Call (888) 818-1088 or email rod@ratestop.com.
This article is for general educational purposes and is not a commitment to lend or a guarantee of qualification, approval, terms, or interest rates.
