Everyone has a vision of what their dream home looks like. But what you must realize is that dreams are not always the reality. Before beginning your search for a new house take a serious look at your financial situation to see how much you can actually afford.
One way of figuring out how much you can afford is by creating a budget. List your income and your expenses. Whatever money is left over (plus the amount you’re currently paying for rent) is the maximum amount of your mortgage.
You can also use an online tool like CNN Money’s home affordability calculator to help you figure out how big of a house you can get.
With the way banks are nowadays they are strict about who they loan money to and how much they loan out. That’s actually a good thing because they will not loan you more money than they think you can pay back. The banks are now finally doing their due diligence, which is what they should have always been doing in the first place. One of the reasons we got into this economical mess nationwide was because people were borrowing more money than they could ever pay back and the banks were eager to loan it out.
When you consider how much you can afford, take note that buying a house will cost you more than just your mortgage. There’s property taxes, homeowners insurance, association dues and home repairs.
You should never take a loan out if you are not sure that you can pay it back. This means that you should have a stable work history in a stable industry. You should also only take a loan out if you have a 20% down payment. If you don’t have the discipline to save for a down payment then you will not have the discipline to make your monthly mortgage payments on time.