01 Oct

Written by Kathryn Vercillo on October 1, 2009

People who are in the market to buy a new home have a lot of questions. The main question that most of these people ask first is “how much house can I afford?” They want to get the biggest house that they can for the most affordable price. Luckily there are a lot of online housing price calculators out there that can help you answer this question. However using these before you do some serious thinking is a mistake if you want to be frugal about buying a home. You should ask yourself some other questions first so that you’re in a good position to get the home that you want at the price that you can truly afford to pay.

The housing calculators that exist to tell you how much home you can afford are using two different numbers to come up with their calculation. First they are looking at how much you’re able to put down as a down payment on a new home. And second, they’re looking at how much you’re able to borrow for your home mortgage. Those factors are important when you’re doing the final math regarding how much home you can afford. However you also need to know some other things before you even get to this point. You need to know what you want from a home, how much it will really cost you to live in it and what options you have for using the home itself to supplement your income. Asking yourself some key questions can help you to get a better grasp on how much house you can really afford.

Here are some of the top questions that you can ask yourself if the first question on your mind is “how much house can I afford?”

• How much house do I want? Mortgage calculators will tell you how much home you can afford. However, you don’t want to start looking for a home based on the price that they give you. What you want to do instead is to ask yourself how much you really want in a home. Get a good idea of the home size and home price that you’d like to pay. You can deal with the math later to see if you can afford what you want but you need to know what you want before you start.

• Where do I live and am I willing to relocate? How much house you can afford depends a lot on where you live. If you’re interested in getting a very large home with a big yard but you live in an expensive dense urban area then you probably aren’t going to be able to afford as much house as you want. Look realistically at the place where you live and the size and cost of homes there. If you can tell at a glance that you can’t afford the size of home that you want there then you need to ask yourself if you’re willing to relocate. If not then you’re going to need to readjust your expectations. Going through this process will make it a lot easier to choose a home once you’ve calculated the exact amount you’re actually able to afford.

• What will be the monthly costs associated with the size of home that I get? Don’t forget that the home that you buy has costs associated with it. For example, you are going to have to pay an electric bill every month. Your housing calculator may tell you that you can afford a big six bedroom home. However, if your monthly income isn’t enough to cover the cost of powering a home of that size then you can’t actually afford it. Make sure that you get a good idea of how much money you have per month for housing expenses as you go through the process of figuring out how much house you can really afford.

• What other fees will be involved in the buying of a home? Buying a home doesn’t always involve just paying for the house and its monthly bills. Sometimes it involves a number of other ongoing fees including property taxes, housing association fees and maintenance fees. If you buy the most expensive house that you can afford then you may not be able to make these payments which means that you won’t actually be able to afford the home after all.

• Do I really have the full down payment that I want to use in calculating in how much house I can afford? When you use a housing calculator to determine how much house you can afford, one of the numbers that goes into the calculation is the amount of down payment that you can afford. You have to ask yourself if the number that you’re entering into that calculation is really what you’re willing to pay. If you’ve been saving up your money for something else (such as a big trip or your child’s college tuition) then you may not want to put it all into a housing down payment even if it’s money that you have access to now. Make sure that you ask yourself how much down payment you really want to pay before you do your final calculations.

• Is there a way that I can use the home to increase my income? Finally, you should ask yourself if there’s anything that you can do to use your home to increase your income which would offset the total cost of owning the home. For example, you might be able to afford a three-bedroom house instead of a two-bedroom if you were willing to rent out that third bedroom to a roommate or using it to host paying travelers. Or you might rent that third bedroom to a live-in housekeeper and nanny, eliminating those monthly costs from your life and making the larger house affordable. Alternatively you might give up your office and have a home office, saving money by getting rid of the expense of renting out office space. Look at creative options for turning your home into income and factor those options into the equation when determining how much house you can afford.

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