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Budget Size Matters: How Much Home Can I Afford?

Apr 11, 2017 - Posted by: Rocky Mountain Credit Union

There are so many factors to consider when buying a home, but the number one question you should be asking is this: how much home can I afford? This question has a number of layers to it, and it involves more factors than we can cover here. There are, though, a few factors that stand out when working out this complex question. 

Budget

When you’re asking yourself, “how much home can I afford?” the obvious starting point is to look at your budget. Remember that you don’t want to spend much more than a third of your budget on your home, so that will play into the size of your home. Obviously determining your monthly mortgage payments should happen before you even consider looking at actual houses. There’s no point in wasting a weekend checking out mansions only to find you can only afford a shed. 

 

Location

The next thing to consider is location. It’s not just “how much home can I afford” after all. You’ll need to consider schools, proximity to the office or other important services and locations, and safety. If you’re on a tight budget and don’t have any kids, you might have to sacrifice that four bedroom house next to the beautiful park. On the other hand, if you have two kids you might want to shell out a little more to be close to the school of your dreams. Smaller towns are cheaper and great for raising a family, but can you make the commute? These are all things to consider. 

 

Utilities

When considering your budget and asking the question “how much home can I afford,”  there’s one aspect of the size of your home that is often forgotten. The cost of utilities can make a dent in your budget to the tune of hundreds of dollars, and the difference between a 1000 square foot home and a 1,500 square foot home can be huge. Make sure to look into utility costs in the area and ask your realtor before pursuing a larger home; you’ll be glad you did when you get the bill. 

 

Market

This is especially important if it’s the first time you’ve asked yourself “how much home can I afford?” Buying a home for the first time is even more daunting, so considering the market is a must. Are you buying a home that’s going to lose money in ten years, or will you come out ahead? Especially if you’re starting a family, the potential for profit can be a deal maker or deal breaker. Look into recent trends in the area and talk to your financial institution and realtor for advice. 

 

Think about the return on investment

There’s  more to it than just the property value, though. Are you handy? Can you live in a dump? Do you want to put a lot of work into your home, or would you like it move-in ready? All of those little projects will affect not only the price of your home but how much you enjoy it as well. You could turn a nice profit by fixing up that unfinished basement or renovating that kitchen from the 70s, but do you want to spend every weekend covered in sawdust?

 

Cost calculation

To estimate a home that’s affordable for you, start with your budget. Now figure in how much you can afford for a down payment. Using your savings can make a dent in the monthly mortgage payment, but often a couple of thousand dollars won’t make a noticeable difference. Look at the interest rate and don’t forget about those other monthly costs, like property tax and homeowners insurance. Compare all of these amounts to find the ideal monthly cost and talk to your realtor and financial institution to come up with a reasonable size home for you. 

 

When you ask yourself “how much home can I afford” your answer affects your family and your future. There’s more to it than simply the cost of a home, and you need to look carefully at your expenses and consider the future when you consider home size. Location is as important as size, do you feel like driving into town, or would you like to be close to convenience? Stay organized and consider your options, and you’ll end up with the home of your dreams.

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