How Much Can I Spend on House?

How Much Can I Spend on House?

How much you can spend on a house is always a good place to start the home buying process? You are really the only one who can answer that question. A lender can pre-qualify you for a loan amount but it’s not always the right amount to spend. It’s really all about your budget.

The first thing you should do is get that pre-qualification done. This will give you a ballpark figure of the amount of the house.  Once you are approved you should sit down and really be honest about your budget. I know it’s hard but write it all down, even those trips to Starbucks or those fabulous shoes you like to buy. Once you buy a house, you will still want to do those things so you want to make sure you have the money for it. As many would say you don’t want to be house poor. Don’t worry no one else needs to see this. It is just so you have an idea of what you would be comfortable spending.

Here are three things to think about in your budget.

 Cost of Commuting: Figure out if there is a difference in mileage from the neighborhood of choice to work and calculate the amount of gas that it would take. I know in my case I underestimated the amount of gas I would need to commute to my work from my new home. While it seems like a small thing, it is about $100 a month and that’s a big chunk of change.  If you are commuting by public transit, check to see how much that bus, train or subway ticket will now cost each day.

 Utilities Cost:  I moved from my apartment with very low utilities to a house. My bill increased 5 times from what it had been in my apartment. Luckily, I had budgeted for that and you can too. As soon as you find a home you can call the electric company or gas company. Ask them what the past usage for the home has been. While you may use more or less electricity/gas it will give an idea of what to budget for.

 Rainy Day Fund: I know everyone says you should have one of these funds and there is a reason. It’s true. Yes you just bought a house and nothing should go wrong. In reality things will go wrong and you need to have the means to fix it.  For us it was the roof.  The roof itself is in great shape, as the inspection pointed out.  However, we found out that our shingles were recalled after we moved in and they don’t make them anymore.  Well, when the first hurricane hit, we lost a lot of shingles and had to have the entire roof redone.  So a rainy day fund is not just a cliché.

Now that you know what you would feel comfortable paying in a mortgage you are a step closer to the right house price. Your lender can help you here. There is a lot that goes into that payment. You have the principle, interest and escrow.  The escrow is different for everyone. So the lender is really the best person to tell you how much your payment will be on any one house. While you are looking you can use the mortgage calculators you find online (I even have one on my website) but keep in mind the final payment will most likely be more. Don’t be afraid to ask! Lenders are there to help and if they aren’t you might want to look for another one.