How much house can you actually afford? The answer’s not so simple.
It’s tempting to just plug your income into one of the many online mortgage calculators, but you won’t get the complete picture. Instead, you’ll get an estimate based on 45 percent of your gross income as a maximum.
Using that number as a guide can lead to unrealistic expectations or, even worse, buying a house you can’t pay for. Don’t fall in love with a house or neighborhood before you know what you can really afford.
Online mortgage calculators, like your credit report and score, don’t take into account monthly expenses like utilities, HOA dues, etc. Not to mention groceries, day care … the list goes on. Those expenses that are unique to you and your family have to be taken into consideration in a detailed budget. Leave yourself realistic leeway for things like leisure spending and emergencies. If you commit yourself to a mortgage payment that’s too high, you could end up putting unplanned expenses on credit cards.
Don’t forget that homes come with their own costs beyond the monthly mortgage. Things like increased power bills, property taxes and homeowners association fees can really add up.
Once you’ve done your homework and taken all these contingencies into account, ask yourself, “What is the most I’m comfortable spending each month?” Then you can finally use a handy mortgage calculator to figure out your price range. Make sure you’re using a tool sponsored by a financial institution before you hit “Calculate.”
Check out all of our posts in our home buying and selling series!
Author: Brian Luger, Director of Mortgage Lending for CommunityAmerica Credit Union. The blog and its opinions are expressly that of its author and does not convey the opinions or strategies of the Credit Union and should not be considered financial advice. CommunityAmerica’s Mortgage offers are subject to credit approval and terms may vary based on conditions.