How Much Can You Afford to Spend on a Home?
When future homeowners daydream about buying property, they tend to picture the upside. They envision their beautiful, perfect apartment or house. They imagine what it must be like to grow their fortune over time. They foresee things like changing their home’s layout whenever they like, because it’s theirs.
But, while buying a home is an exciting and life-changing event, it should also be considered realistically. What can you buy? What kind of budget are you looking at? How are you going to purchase your home while avoiding mortgage stress?
You should love the home you’re buying, obviously. But you should also ensure that you don’t put yourself in a rough position. With a little bit of financial foresight, you can avoid bending over backwards trying to handle a mortgage that’s too large for you.
What can you afford?
A typical rule of thumb for buying a home is to ensure that your expenses equal no more than 1/4th of your gross income. It’s important to remember that your home-buying expenses will total more than the cost of the actual home.
Maintenance, upkeep, taxes, your mortgage, your insurance package and more are all factored into this rule of thumb. The rule comes from authors Manisha Thakor and Sharon Kedar, who wrote a personal finance book called “On My Own Two Feet”. According to their expert opinions (illustrated in their book), spending any more than 25% of your gross income on a property will leave too little money for other important things.
It’s imperative that you seek expert budgeting advice before making a huge decision like buying a property, even though rules of thumb like these can be helpful. Just keep in mind: It might be prudent to understand your budget before you go house-hunting. That way, you’ll avoid the disappointment of looking at homes outside of your budget.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage. The cost of your mortgage can drastically affect your financial planning, so it pays to speak to the experts about it.