How Much House Can I Afford?

How Much House Can I Afford?

So you’ve decided to buy a house. The next step is to contact a mortgage lender to find out how much house you can afford. There are several things to think about, and it’s often tempting to buy the priciest home you can. Instead of rushing in, though, consider the following.

How Much House Can I Afford with My Salary?

One thing you should never do is confuse "afford" with "qualify for." You might qualify for a $500,000 mortgage, but that doesn’t necessarily mean you can afford a $500,000 mortgage.  

Remember, you’ll need to take several things into account beyond your mortgage principal and interest. You’ll need to pay property taxes, homeowner’s insurance, and, if you live in a condo or co-op, a monthly association fee. You’ll also need to put cash aside for household repairs and bills. You should consider the fact that the terms of your mortgage will vary according to a variety of factors, including your credit.

A Rule of Thumb for How Much House You Can Afford

It doesn’t matter if you’re buying a house in Edwardsville or a condo in Fairview Heights, the same rule of thumb should apply. When banks work out how much they can lend, they usually qualify you for no more than 43% of your monthly income. The 43% rule is a good one, but it’s usually best to err on the side of caution. Getting towards 30 to 35% will be far more manageable, and will give you plenty of financial breathing room going forward.

Questions to Ask Before Buying

When you’re reaching towards the right number, it helps to ask yourself the following questions:

• Can I cover closing costs and moving expenses?
• Is the house payment 25% or less of my monthly take-home pay?
• Can I afford the maintenance costs for this home?

If you’re answering no to to any of these questions, you might reconsider the kinds of houses you're looking to buy.

Of course, your interest rate may vary, but the above speaks to how much a large down payment can make a home more affordable!

We Can Help You Decide How Much House You Can Afford

Buying a home is a big decision, so don’t hesitate to contact Town and Country Bank and Peoples Prosperity Bank or visit your local branch for advice — we’ve helped people from Bloomington to Decatur and all across central Illinois get home loans and manage their mortgage.