How Much House Can I Afford?

Here's a question most people don't ask themselves: How much house can I afford? Instead, they ask a bank how much they can afford -- which is a very bad mistake. Fortunately for the person in this article, she asked MSNBC how much house she could afford. Their answer:

This question really has two very different answers: 1) how much will a lender give you? and, more importantly, 2) how much do you feel comfortable borrowing?

Especially for first-timers, you really need to start with question #2, and no one can answer it better than you can. If you’ve never made a budget, sit down and come up with one. How much cash do you think you can comfortably afford to devote each month to housing (mortgage) payments? Some people are willing to forego movies and dinner out, bring lunch to work every day and give up their car – anything to own a home. Some stretch too far and find themselves pouring all their income into the house, leaving themselves in permanent financial stress.

They also recommend checking out mortgage calculators on the web like ones found a Bankrate .

My two cents on this topic is that if you follow the right formula for buying a house you can be a wealthy homeowner with little stress on your finances. On the other hand, if you stretch too far, buying a house could be your financial downfall. Proceed with caution. And before you do, check out these posts from Free Money Finance:

• Six Ways to Get a Fast Downpayment for Your Home
• How to Bubble-Proof Your Home
• Why Homeowners Get Rich and Renters Stay Poor
• Big Money Blunders to Avoid: Buying a Home

Comments

[mapgirl]

I totally agree. It stinks living a big place with your old disposable college furniture. Because I'm sure folks aren't buying furniture on credit! ;-)

I could have maxed out the loan I was initially approved for, but I decided to look in a cheaper neighborhood for a place to live. I don't regret it. I don't sweat the mortgage payment every month, which is good, because my 'fixed' payment has gone up a little bit every year due to escrow requirement changes.

[a]

28-33 percent of your monthly income should be your mortgage payment

[Laine]

Living in San Francisco, my mortgage (including tax and homeowner's dues) is 50% of my net income. The interest tax deductions dropped me a few brackets to help pay for the hefty SF mortgage, and the appreciation has more than made up for the hardship (500% return on investment in 2 years). It really is a personal decision rather than a fixed percentage. People should do all the homework, and figure out the appropriate risk. Too many people buy their homes with their heart.

[monkeyjoe]

A great calculator I came across was www.mortgagecalculatorplus.com. It breaks down the payment with taxes and PMI, something many calculators leave out.

[Teri]

Great Advice!

We recently applied for a mortgage loan for the first time on 1-income and I Was worried we would not qualify for our current $200k loan. No, instead we qualified for about $600k max - *choke choke* - about 10 times my income. & I Said I only wanted a fixed rate.

Considering about $200k is our comfort zone (payments about 1/3 of my income), you see the big gap. I could only imagined if we ventured into ARM territory. Since we have excellent credit they would probably write us a blank check for whatever we wanted - no-doc loan and all that. About as bad as going sub-prime if you take the max.

We are from the San francisco area as well and refused to put 50% of 2 incomes on a mortgage so we moved. I know to many we have a big house and a big mortgage, but compared to what we grew up with thinking we had to buy, its peanuts. For a while our mortgage was 50% of 1-income, but that is completely different, and we felt comfortable. Today it is about 25% of just 1 income. We never could have dreamed of owning a home so cheaply back home.

We are considering moving again since our house more than doubled the first couple of years and is going strong. I just worry we will always be moving somewhere cheaper our entire life. Then again we have never made a smarter financial decision than to move. SO why not do it again.