How To Estimate What You Can Really Afford in Floresville

If you’re looking to buy a house, you’ve probably wondered at some point how to estimate what you can really afford in {market_city]. And it’s a smart move to figure that out before you ever start looking. Doing some affordability calculations, in the beginning, will allow you shop within your price range and so will save some time and frustration. You won’t do your house hunting saddled with unrealistic expectations.  You want to start your shopping experience knowing you are prepared when you find that perfect house.

While the best gauge of your ability to purchase and the amount for buying is figured when you apply for a loan you can estimate by these guidelines.  So, then, in order to estimate what you can really afford in Floresville, all you have to do is calculate – and all the while being completely honest with yourself – the following . . .

Accessible Financing

The first step is to figure out, as close as you can, how much financing you can actually get. Now, while the amount of your paycheck is the primary factor here, a lender will factor in other inevitable expenses like HOA fees, insurance, and taxes.

In general, banks and mortgage companies have two methods by which they calculate how much they’ll lend, and these are the front-end ratio and the back-end ratio. Whichever formula yields the lower monthly payment, that’s the one you’ll have to go with. The front-end ratio involves the mortgage payment as a percentage of your gross income, usually with a 28% cap. More complex, the back-end ratio deals with your total monthly debt payments as a percentage of gross income and comes in at around 36%. But depending on your employment and credit situation, as well as lender standards, those percentages can be higher.  The higher you go on that back end ratio the more stressed your discretionary income will be.

I always tell people if you qualify for up to $350,000 it doesn’t make sense to look at houses selling for $400,000.  You are wasting your time and may be setting yourself up for disappointment.   If the $400,000 house has features that none of the $350,000 houses have you will feel let down that you are not getting those.   It’s better to get the best of the $350,000 houses and not regret what you can’t have.  The same goes for someone shopping in the $100,000 range.  Be happy with house you choose and don’t have any disappointment.   Not to mention wasting time looking at a house you don’t qualify to buy.

After-Tax Take-Home Pay

This sounds painfully obvious, but many people really aren’t aware of what their actual net pay is. You have to know this in order the know what kind of mortgage payments you can comfortably handle. If you’re not sure, just go back through several of your latest pay stubs or contact your HR department.  This is the amount of your paycheck unless you are self-employed and that figure becomes trickier.  The mortgage company will calculate that based upon your IRS 1040s for the past 2 years.  Anyone that is self employed normally has to be self employed for at least 2 years for a home loan and their income is based upon their tax returns.

Recurring Monthly Expenses

Calculating monthly expenses

In order to accurately estimate what you can really afford in {market_city], you’ll also need to figure out exactly how much you have to pay out each month. This would, of course, include standard monthly expenses like utilities, food, gas, phone, Internet, and insurance. But you also need to include such things as entertainment and clothes, which are very close to monthly expenses and make sure not to leave anything out.  You want to be able to afford the internet,  subscription tv, and not be in a pinch every month.  If you don’t already have a monthly budget in place, you can go back through your checkbook or bank statements to calculate this.   Don’t be house poor.

New Expenses

Then you need to take a look at what new expenses you’ll take on when you buy a house. These expenses will vary according to the type and condition of the house and the area and neighborhood where it is located, but will generally include maintenance and repair expenses, HOA fees, homeowner’s insurance, security costs, and property taxes. Also, if it is larger home with lots of amenities there will be things like pool maintenance expenses and landscaping upkeep costs. Also, if you’re moving to a distant suburb far from your job, you’ll need to factor in the increased transportation costs, as well as the larger maintenance costs for your car and the inevitable wear and tear and depreciation on those vehicles.

When you estimate what you can really afford in Floresville, you’ll know exactly how much home you can afford and where. But the mere fact that you can buy it and make the payments, doesn’t mean that you should. For there are other considerations and contingencies to plan for.  You never want to be house poor.  You want to be able to go out to eat once in awhile or splurge on a new living room set.

Talking to a lender is something that guides you on this path.  Plus it never hurt to “shop” the area to see if the homes fall within your price range.   Take a look at this blog post also about lenders. How To Choose the Right Lender


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