How Much Can you Afford?
Do you know why is it so important to know how much you can afford to spend on a home?
Two reasons. First and foremost, you don’t want to purchase a home only to discover after you’ve moved in that you can’t afford to keep it up. That would necessitate reselling it intense circumstances.
Second, you don’t want to settle for a less-than-ideal property when you could have bought the “dream home” you’ve always wanted.
So, how do you calculate how much you can afford to pay for your next house?
The first step is to determine how much your current home will likely sell for in today’s market. This amount, along with any other financial resources you may have (for example, savings), will determine your available down payment. And of course, you need to determine the maximum amount of mortgage for which you qualify.
Assume your expected down payment is $150,000, based on the proceeds of the sale of your home and your savings. If the lender approves a $375,000 mortgage, you can afford a $525,000 home. Typically, your lender will determine your maximum mortgage based on a percentage of your income, among other things, to ensure that you can afford to keep the property.
It is also worthwhile to perform your calculations. Calculate your expected utilities, insurance, and property tax, and make sure you have some money set aside for unexpected expenses. Of course, you don’t have to spend as much money on a new home as you qualify for. A home that meets your requirements in terms of property type, features, and community may be less expensive. A good REALTOR® can aide you make the right offer for the property you’re interested in buying. For free valuation, contact us at 401-396-2888. We’re always glad to help!