Owning their own home is a dream for a lot of people; getting on the property ladder is the ultimate goal. Home ownership is seen as the key to having a financially stable future, but the competition is fierce, and house prices are on the rise. However, many people aren’t sure what or even if they can afford to buy a home. No one wants to overstretch or find themselves in debt because they can’t meet their mortgage repayments. So how can you tell if you can afford a home? Read on to find out.
Use a Mortgage Calculator
A mortgage calculator can be a great tool. Input the necessary details like your down payment and your income, and it will tell you much you can afford to borrow and what you can expect your repayments to look like. For example, just suppose the average rent in Seattle for a one-bedroom apartment is currently $1,600/month. You multiply this by 12 to estimate the annual rent, which is $19,200. If you want to purchase a home for $200,000, then the mortgage calculator tells you that your monthly mortgage payment would be about $1,020 (assuming a 20% down payment). To put it simply, it tells you how much house you can afford.
Create a Budget
Come up with a budget to help you save for your down payment. The bigger your down payment, the better mortgage deal you will be offered. Your budget will give you a target and a time frame to help you maximize your saving potential. Get in the habit of budgeting; this will help when you first purchase your home because money will be tight for a while. Budget well and ensure you can afford your outgoings.
Do Your Research
Use sites like Zillow and others out there; they can provide you with comparative information about the prices you can expect in your desired area. Develop an understanding of the fluctuations in house prices and the factors that affect this. You will be in a better position to judge the value of the houses you view. This informed judgement can be instrumental in knowing whether the properties you view represent a good value for money.
Understand All of the Costs
Moving into a new home, especially your first home, is expensive. Although some people are unaware of the other costs involved, there are other fees necessary for the purchase of a house. Some legal, like property surveys and taxes, and some personal, like moving or buying furniture setting up your bills. Take all of these into account to ensure that you can afford the home you want.
Consider Your Options
Sole Ownership is not the only option. There are other forms of home ownership that may suit your budget better. Depending on your personal circumstances, you may be eligible for joint tenancy, tenancy in common or community property. Your eligibility will depend on what state you live in and your marital status for the most part.
In Conclusion
Buying a property is a huge step, and it represents a substantial financial commitment which is why you need to think about what you can realistically afford. Although it can limit your options, you do not want to commit to a mortgage only to realize that you can’t afford to have a life as well.
