How do you know how much you can afford?

jessica490 · June 2014

Is there a way to figure out the house price that I can afford, based on the monthly payment that I know I can afford? Say, I know I can afford $1400/mo including everything (Tax, interest, principal, and prob PMI), is there a way to see what price homes I can look at?

Xstatic3333 · June 2014

Honestly? I just adjusted the little payment predictor features on Zillow.com. You can't always trust it for tax rates, but it gives you a basic idea. It doesn't account for utilities, though.

ta78 · June 2014

You can try using something like this. Just plug in some numbers until you get what you feel comfortable paying. It can at least give you a good idea, maybe not exact.

http://www.trulia.com/mortgage/calculator/payment/

ta78 · June 2014

Ok, well I can't get the one on trulia to work for me, but just use the one on one of the listing websites, like zillow, redfin, trulia or google mortgage calculator.

smerka · June 2014

Don't forget to add insurance to your calculation.

jessica490 · June 2014

Oh ok, thanks! I will try these

vlagrl29 · June 2014

smerka said:

Don't forget to add insurance to your calculation.

and property taxes

jessica490 · June 2014

ok!

hoffse · June 2014

I found a pretty good calculator that estimates 1.3% for taxes and insurance. Property taxes can vary a lot, but that's average. When we got our quote back from the bank, the 1.3% that I had been estimating for those was literally $6 off. Our property taxes are 0.9% here, which means insurance is estimated at about 0.4% for my area. Check out your local laws to find out what property tax rates are where you live.

PMI can either be paid monthly or you can accept a higher interest rate and the bank pays it in one lump sum at closing.

Also keep in mind your utilities are likely to go up. If you are renting an apartment, it is probably better insulated than any house you will buy, unless you go with new construction. You also might have added water, sewer, and heating costs (depending on where you live) that your apartment complex covered. Example: watering a lawn is actually pretty expensive.

If it were me, I would take that $1,400/month and cut it down to $1,200/month. That gives you some wiggle room for increased utility costs. Also make sure you can continue to afford contributing to retirement, e-fund, etc. You don't want to find yourself struggling to make that work. An e-fund is especially important when you are a home owner. If you lose your job, you still have to continue paying your mortgage until you are able to sell.

When H and I were figuring this out, we basically took our combined income (starting in Sept.) and subtracted out all of our debt obligations, our debt pre-payment, our budgeted spending items, and our savings categories (baby, car for me, travel). We also subtracted monthly savings for home improvement/furniture. Then we saw what was left and subtracted a few extra hundred for increased utilities. From there, we made sure we could afford that on one income, along with the other things we are legally obligated to pay in case one of us looses our job or I decide I want to stay home after having kids. We also wanted a bit left over for savings in that scenario, but it didn't have to be tremendous. That's how we got to the monthly payment that we could actually afford. Then we used mortgage calculators to find out how much house that would buy us.

Fun fact: it's less than half the price the bank told us we could afford.

Sisugal · June 2014

Mortgage+PMI+taxes+insurance+HOA+utilities = monthly housing expenses. Keep this amount to 25-28% of your takehome pay - less if you have alot of other debt (student loans, car payments, credit cards etc, personal loan). Remember to add maintenance and furnishings in your budget as well as ongoing expenses.

Your banker or realtor can help you with the approximate tax amounts as well as utility costs .

jessica490 · June 2014

Thanks for the great tips!! We definitely need to save up more of a down payment, but yes, I have to remember that the other utility costs will go up as well.....it feels really hopeless to buy a decent house here in HCOL....we are still back and fourth about moving to VA..

hoffse · June 2014

AprilH81 said:

And you've probably seen this in other threads, but the first few months in any "new" home (even if you have owned before) is expensive. There will be a lot of things you need, even if you don't need new furniture.

I would budget a few thousand at least for those expenses and a monthly line item in your budget for house stuff (curtains, paint, flowers, whatever) for awhile as you settle in.

I think this is a good thing to keep in mind. Once you start adding up all the little extras, it becomes a lot. Of course you can live without curtains, but you probably will want them at some point to make the house look nice. It's reasonable to add that sort of thing to your budget.

jtmh2012 · June 2014

hoffse said:

I think this is a good thing to keep in mind. Once you start adding up all the little extras, it becomes a lot. Of course you can live without curtains, but you probably will want them at some point to make the house look nice. It's reasonable to add that sort of thing to your budget.

I include curtains in my move-in budget because the house we bought didn't have any on the windows when we moved in. We would have been on display to the neighbors behind us after the sun went down if we had turned on the lights. That said, we bought Christmas wrapping paper after the holiday at $0.25/roll and used that for about a month or two.

jtmh2012 · June 2014

jessica490 said:

Thanks for the great tips!! We definitely need to save up more of a down payment, but yes, I have to remember that the other utility costs will go up as well.....it feels really hopeless to buy a decent house here in HCOL....we are still back and fourth about moving to VA..

Not sure where you're at now, but in my opinion VA isn't much better. The houses are cheaper, but companies just pay less to make up for that.

jessica490 · June 2014

jtmh2012 said:

jessica490 said:

Thanks for the great tips!! We definitely need to save up more of a down payment, but yes, I have to remember that the other utility costs will go up as well.....it feels really hopeless to buy a decent house here in HCOL....we are still back and fourth about moving to VA..

Not sure where you're at now, but in my opinion VA isn't much better. The houses are cheaper, but companies just pay less to make up for that.

From CT. It would be the Richmond area for work. My former boss moved there 1.5 yrs ago so we are going there to visit in Sept to check it out....ugg....I would love to have a little cheese with my whine....

Xstatic3333 · June 2014

jessica490 said:

jtmh2012 said:

jessica490 said:

Thanks for the great tips!! We definitely need to save up more of a down payment, but yes, I have to remember that the other utility costs will go up as well.....it feels really hopeless to buy a decent house here in HCOL....we are still back and fourth about moving to VA..

Not sure where you're at now, but in my opinion VA isn't much better. The houses are cheaper, but companies just pay less to make up for that.

From CT. It would be the Richmond area for work. My former boss moved there 1.5 yrs ago so we are going there to visit in Sept to check it out....ugg....I would love to have a little cheese with my whine....

Ouch, CT is soooo expensive. Could be an exciting change!

jtmh2012 · June 2014

jessica490 said:

jtmh2012 said:

jessica490 said:

Thanks for the great tips!! We definitely need to save up more of a down payment, but yes, I have to remember that the other utility costs will go up as well.....it feels really hopeless to buy a decent house here in HCOL....we are still back and fourth about moving to VA..

Not sure where you're at now, but in my opinion VA isn't much better. The houses are cheaper, but companies just pay less to make up for that.

From CT. It would be the Richmond area for work. My former boss moved there 1.5 yrs ago so we are going there to visit in Sept to check it out....ugg....I would love to have a little cheese with my whine....

We just moved to Richmond from Chesapeake. Generally like it better than where we came from. Good luck.

jessica490 · June 2014

Oh, good to know, thanks!

vlagrl29 · June 2014

When I moved back into the house after my first H passed away I had to buy A LOT of stuff. I didn't like his furniture or style and sold some of it. I had to buy a living room, dining room, and bedroom set because I only had my twin bed and 12 inch tube tv. I had to buy a bigger tv

My first grocery trip and target trip were HUGE. So much stuff you never think of until you need it.

BlueBirdMB · June 2014

Sisugal said:

Mortgage+PMI+taxes+insurance+HOA+utilities = monthly housing expenses. Keep this amount to 25-28% of your takehome pay - less if you have alot of other debt (student loans, car payments, credit cards etc, personal loan). Remember to add maintenance and furnishings in your budget as well as ongoing expenses.

Your banker or realtor can help you with the approximate tax amounts as well as utility costs .

This exactly. There are calculators where you can enter in your income and get an approximate of what you would quality for. I would suggest simply getting pre qualified so you can know what you can look at. Then yes, remember that you will need some extra cash for expenses after paying your down payment and closing costs.

And my suggestion to everyone is to avoid PMI by having a larger down payment. It's such a waste of money.

How do you know how much you can afford?

Re: How do you know how much you can afford?

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