What can you afford? Making this decision can be difficult, but it is critical to a seamless transition into your new home. Here are some simple steps to help you find that magic number.
Calculate your monthly budget—how much disposable income do you have after all other expenses?
Estimate the purchase price range of your future home
Add up the following figures:
Your future home’s annual real estate tax, divided by 12
Your future home’s annual estimated cost to insure, divided by 12—your insurance agent can help you come up with this figure
Your future home’s monthly dues (only if there’s a home owner’s association)
Subtract the above calculated figure from your monthly budget—this will tell you the maximum monthly mortgage payment you can afford
Enter your maximum payment, your loan’s expected term, and your expected interest rate into a mortgage calculator and have it solve for “loan size”
Add your calculated “loan size” to your expected down payment—this will tell you the maximum price you can afford to pay for your new home while remaining within your budget