If you are starting out asking the question “how much house can I afford”, then you are ahead of most people.
Many home-buyers don’t take the time to even do a back of the envelop calculation of what their monthly income and expenses are before they start bidding on a house they probably cant’ afford.
However, in order to answer this question well, you need to get these questions answered first:
- How much are the taxes on the house I want to buy (or in the area I want to buy)?
- What is an estimated yearly insurance on the house?
- How much will it cost me to maintain the house (roof, plumbing, electrical, HVAC)?
- Do I have enough furniture to fill this house? If not, how much will I have to spend for that?
- How much am I spending now on housing?
- With my current monthly income and expenses — am I saving money, losing money or breaking even?
- What will be my liquid net worth after I buy this home and make the down payment?
- If I buy a house worth $X and my savings are $Y, how long will I last if I lose my job?
- Is this house located in an area where employment opportunities are plentiful (in case I lose my job)?
- What am I willing expenses am I willing to sacrifice to afford this house?
After you have taken the time to answer all these questions, we will tackle the question of how much of a mortgage payment you can afford.
Patience, young grasshopper.