What kind of house can I afford? This is one of the most commonly asked questions our clients at Prime Real Estate Group have. Although there are certain rules of thumb to consider, everyone’s situation is unique. Thus, two people with the same salary might not be able to afford the same house due to various factors such as their other debts and their savings. Today, we’ll have a closer look at how you can determine which homes are affordable for your situation.
Buying “too much house” can be detrimental for your personal finances. If your mortgage makes up a significant portion of your income, you might have to restrict your lifestyle, and you’ll struggle to pay for your other commitments and save for retirement. For this reason, you should consider carefully what types of properties are within your price range.
The easiest way to assess the accessibility of a house is to follow the 28/36 rule. However, you should also consider additional factors such as your savings, your personal circumstances, your credit profile and projected interest rate, and your spending habits.
The 28/36 Rule
Most personal finance experts agree that you shouldn’t spend more than 28% of your gross income on your mortgage. Additionally, the total amount of debt you have, including credit cards, personal loans, and auto loans, shouldn’t exceed 36%.
Following this rule allows you plenty of money left over to pay your taxes and provide for yourself and the rest of your family. Homeowners should also be prudent and set aside funds for home maintenance and improvements. Remodeling a home will likely increase its resale value later on.
Other Influencing Factors
In addition to the 28/36 rule, which is based on your income, you should also consider the health of your personal savings. If you have the money for a large down payment, you could afford a much bigger place without having to take on a lot of debt. Similarly, a single person could spend a larger percentage of their income on their home because their living costs might be lower than those of a family.
Finally, it’s important to consider your credit profile. The interest rate on your mortgage is crucial because it directly influences your monthly payment. High interest rates mean you end up paying more money in total for the life of the loan. For this reason, people with a great credit score can often afford a bigger place than those with a low or moderate score, even if both have the same income.
When figuring out which properties are affordable, there are various factors to consider. Aside from your income, you should take into account your other debts, your savings, and your personal spending. If you’d like help figuring out which homes are within your price range, you could benefit from working with a professional. Call us now at Prime Real Estate Group in Spokane, WA, to book an appointment with our experts.