{"id":51130,"date":"2022-01-03T12:43:55","date_gmt":"2022-01-03T20:43:55","guid":{"rendered":"https:\/\/www.movoto.com\/blog\/?p=51130"},"modified":"2022-04-11T14:10:18","modified_gmt":"2022-04-11T21:10:18","slug":"calculate-home-buying-budget","status":"publish","type":"post","link":"https:\/\/www.movoto.com\/blog\/calculate-home-buying-budget\/","title":{"rendered":"7 tips to calculate your home buying budget"},"content":{"rendered":"

Preparing to buy a house can be exciting. But before your eyes get too big for your wallet, make sure you assess how much house you can really afford. Here are seven tips to calculate your home buying budget. <\/span><\/h4>\n

Before you fall in love with a house you can\u2019t afford, make sure you take a step back and determine your home buying budget. It\u2019s a common question to ask yourself: <\/span>How much house<\/span><\/a> can I <\/span>really <\/span><\/i>afford? And the answer will vary based on several factors.\u00a0<\/span>
\nHow much money you make, the amount of debt you carry, whether you have steady employment, current <\/span>interest rates<\/span><\/a>, and <\/span>property tax<\/span><\/a> rates in your area are just some of the things that affect the house you\u2019ll be able to buy. To get an idea of what you can afford before you head to your lender for a <\/span>preapproval letter<\/span><\/a>, here are seven ways to estimate your home buying budget.<\/span><\/p>\n

1. Look at your current monthly budget.<\/span><\/h3>\n

One of the quickest ways to get an idea of your home buying budget is to take a look at your current finances. How much are you paying for rent right now? Is it a comfortable amount? Can you pay more? Are you living paycheck-to-paycheck?\u00a0<\/span>
\nYour current rent is a good way to gauge the size of the <\/span>mortgage<\/span><\/a> payment you feel comfortable taking on. It\u2019s often easier to qualify for a mortgage with payments that are lower than your current rent because you\u2019ve already proven you can handle that monthly cost. However, if your current rent payments are a struggle, you\u2019ll need to find a mortgage with lower monthly payments.<\/span><\/p>\n

2. Calculate your debt-to-income ratio.<\/span><\/h3>\n

One of the most important factors in qualifying for a loan is your <\/span>debt-to-income ratio<\/span><\/a>. This ratio shows what percentage of your income is already being spent each month on paying off debts, including student loans, credit card debt, and home loans. If you have a lot of debt, your ratio will be high and that will reduce how much house you can afford. Most lenders want your total ratio under 36 percent, and the ratio of just your mortgage under 28 percent, but there are some exceptions.<\/span><\/p>\n

3. Use several online mortgage calculators.<\/span><\/h3>\n

The online <\/span>mortgage calculators<\/span><\/a> that tell you your home buying budget aren\u2019t always completely accurate, but they can give you an idea. Some of them take into account things like closing costs, taxes, and insurance, while others don\u2019t. The more detailed the calculator is, the more accurate it will be, so make sure you use several calculators to get a better picture of what you should expect to pay.<\/span>
\nStill, calculators don’t take your unique situation into account. If you\u2019re self-employed, for example, there may be some discrepancies in how your income is calculated for the purposes of getting a mortgage, and that can make a lot of calculators a bit of a guessing game. Make sure you shop around with different lenders and explain your unique situation to them.<\/span><\/p>\n

4. Determine the cost of taxes and insurance.<\/span><\/h3>\n

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\nThe <\/span>taxes and insurance<\/span><\/a> you have to pay on your new home will make your mortgage payment higher. You want to take those into account because they can vary depending on where you\u2019re buying a house. Some parts of the country have very affordable property taxes, while other areas have very high taxes that can raise your monthly payment significantly. If the house has a solar power system<\/a>, it\u2019s also possible that it qualifies for tax abatements that can lower your costs.\u00a0<\/span>
\nThe same is true with homeowner\u2019s insurance rates. If you are buying in an area that\u2019s prone to wildfires or flooding, your insurance rates will be higher. By keeping these variables in mind, you can appropriately scale back the price of the home you can afford so you have room to add taxes and insurance onto the payments.<\/span><\/p>\n

5. Do <\/span>all <\/span><\/i>the math.<\/span><\/h3>\n

Until you actually calculate how much it will cost you each month taking into account all costs relevant to your home, you won\u2019t know for sure if the home is within your budget. Calculating mortgage payment schedules on your own can be difficult, so start by using a reliable mortgage calculator to get an idea of your monthly payment. Then add in the following based on the area you\u2019re looking to buy:<\/span><\/p>\n