Finding Your Magic Number: How Much House Can You Afford?
Finding your magic number
District of Columbia real estate professional Pat Kennedy shares her approach for finding the magic number for prospective home buyers. Those that plan to use mortgage financing should always obtain a pre-approval letter as one of the initial steps in the home purchase process.
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The first step to buying a house or condominium is figuring out how much you can spend. Coming up with the number is an exercise in basic math. You look at your income, your debt, your monthly expenses, and also your
comfort level.
Whenever I begin to work with a new client, I have them answer two questions: "How much do you want to pay each month for your mortgage, and how much do you have available for your down payment and closing costs?" And, using the current interest rates, I translate that into a mortgage amount plus their cash on hand to determine the home purchase price that will work.
Then I send them to one of my favorite lenders to get pre-approved for their mortgage. Interestingly, the lender virtually always will agree to lend the buyers a lot more than they would be comfortable paying back!
So my advice is to come up with the numbers for your monthly housing costs. These include:
- mortgage payment
- property taxes
- condo or home owners association fees
- homeowners' insurance
- utilities
Then look at other financial commitments you might have. Some example are:
- Credit Card debt
- Car payments
- Student loan payment
- Alimony or child support
Then you will need to think about your overall life style. Do you have children who will be headed to college any time soon? Do you send money to help support elderly parents? Do you like to eat out a lot or travel to exotic lands? While your lender might not take these expenses into account, you probably should.
If you are thinking about making a move, I can help. I'm licensed in Washington, DC, Maryland and Virginia. Before you make a major real estate decision, call or text me at (202-549-5167 or email me: housepat@mac.com
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