Finding Your Magic Number: How Much House Can You Afford?

By
Real Estate Agent with RLAH Real Estate AB95346
https://activerain.com/droplet/466t

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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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Marte Cliff 10/27/2013 04:22 PM
  2. Roy Kelley 10/27/2013 09:37 PM
  3. Winston Heverly 01/21/2014 09:39 PM
Topic:
Lending / Financial
Groups:
Realtors®
Inspiration Station
Tags:
how much house can you afford

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Rainmaker
32,555
Travis Chatwin
Aaron Roth Real Estate - Solana Beach, CA
Your San Diego Real Estate Resource

This is great... keep it up!

Oct 28, 2013 02:08 AM #36
Rainmaker
239,559
Christi Farrington
Dagny's Real Estate - Wilton, CT
~ Your representative in Fairfield County, CT

Nice job, Pat.  Thank you for helping to point out that we have a responsibility to our clients other than just selling them a house.  Comfort Level are the two words that I always use with my Buyers.  Well said and thank you, again.

Oct 28, 2013 02:36 AM #37
Rainer
116,418
Ric Mills
Keller Williams Southern Az - Tucson, AZ
Integrity, Honesty, and Vast Real Estate Knowledge

Great post.  it is not just PITI, there are other expenses to consider.

Oct 28, 2013 02:53 AM #38
Rainer
465,582
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Too many buyers begin the process of buying a home without seeking advice from a Realtor first, before attending open houses or searching the Internet. All of these issues and more would have been addressed and more importantly would have given them the most suitable and appropriate budget to home ownership.

Oct 28, 2013 02:57 AM #39
Rainmaker
1,055,316
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

Pat, this info is so important for buyers.  As many have said, a lender can tell you what you qualify for according to their formulas, but this may not be the comfort level of the borrower.  Some people like to eat and travel.

Oct 28, 2013 03:09 AM #40
Rainmaker
1,431,110
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I think in the last several years most people have moved away from spending as much as they can.  Of course with prices coming back up we may see more people straining budgets again/.

Oct 28, 2013 03:29 AM #41
Rainmaker
961,971
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Saved this one to read in it's entirety.  Good for you for being conservative with your clients. They'll appreciate it when they hear they can actually buy more house, but aren't comfortable with doing so.  Great blog!

Oct 28, 2013 03:29 AM #42
Rainmaker
2,079,881
Sharon Tara
Sharon Tara Transformations - Portsmouth, NH
New Hampshire Home Stager

Just one example of why you should hire a buyer's agent!   

Oct 28, 2013 04:56 AM #43
Rainmaker
1,557,915
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

I do counsel my buyers, especially first timers, about looking at it from two angles: what they want the PITI to be, or what they want their purchase price to be.  Two different concepts!  Good post.

Oct 28, 2013 05:12 AM #44
Rainmaker
368,638
Travis "the SOLD man" Parker; Associate Broker
Team Linda Simmons, Enterprise, AL 36330 - Enterprise, AL
email: Travis@theSOLDman.me / cell: 334-494-7846

As a VERY loose starting point, I tell MY Buyers to start by knocking off about 10% of what the Mortgage Company tells them they can borrow. I'd rather them feel comfortable with their monthly payments rather than cussing that "Super Salesman" for MAKING them buy that too expensive house!

Oct 28, 2013 10:47 AM #45
Rainmaker
447,843
Kelly Young
The Platinum Group Realtors - Colorado Springs, CO
Colorado Springs Real Estate ~ 719-226-0126

Patricia, I am adamant about buyers talking to a lender that they feel very good working with.  I have them go over all the different scenarios (house, condo, townhouse, HOA dues, etc) just in case.  It is not a fun day when a buyer finds a house they love but cannot afford.

Oct 28, 2013 12:06 PM #46
Ambassador
4,297,433
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Patricia, I also believe the lender wants few months of reserves - just came across one such situation for my buyers. Cutting too close - however, it should work!

Oct 28, 2013 01:58 PM #47
Rainmaker
2,712,934
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

I'm with Michelle. Tread with care and just do what is the very best thing.

 

Love and light,

Laura 

Oct 28, 2013 02:32 PM #48
Rainmaker
58,798
Rekha Vyas
Keller Williams Realty of Brevard - Melbourne, FL

Hi Patricia.

A buyers ability to pay and willingness to pay are two different things. Great post.

Oct 28, 2013 04:39 PM #49
Rainmaker
1,926,344
Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

Living a tad below your means so savings happen, is a habit is a very good thing. Don't get too comfortable in the spending and prepare for those raining day set backs good advice. What you want, what you need don't always match up evenly.

Oct 28, 2013 10:11 PM #50
Rainer
15,848
Meghan Pursley
York, SC
Your South Carolina Real Estate Expert

Well written post, great advice for the basics! It doesn't have to be complicated! :)

Oct 29, 2013 12:51 AM #51
Rainmaker
825,832
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Patricia, we use to live in that area and we can tell you "not very much!"  lol

Oct 29, 2013 04:14 AM #52
Rainer
165,634
Laurie Logan
Keller Williams Realty, Inc., Broker Associate - Madison, WI
South Central WI Real Estate

Excellent Explanation.  I appreciate that you covered questions beyond the standard prequalification: future plans, other draws from the family income, etc.  Planning is key - this outlines it well, thanks!

Oct 29, 2013 09:46 AM #53
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M
Pat -It is so true that what a buyer is comfortable with ls significantly less than what the lender will give.
Oct 29, 2013 02:58 PM #54
Rainer
42,199
Jill Penman
ONE SOTHEBY'S INTERNATIONAL REALTY - Coconut Grove, FL
Coconut Grove & Coral Gables Lifestyle Expert!

Patricia, the questions you ask about how a buyer's lifestyle may affect affordability are especially important.

Oct 31, 2013 12:14 PM #55
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Patricia Kennedy

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