How Much House Can You Afford?

If you are thinking about buying a house, either for the first time or upgrading, it is a good idea to calculate how much of a mortgage payment can you afford. It’s best to calculate these numbers BEFORE you start looking for a house. Otherwise, you run the risk of clouding your judgment or wasting your time looking at houses you can’t afford. So, how do we calculate how much we can afford? It’s not a hard calculation but it does require you to be honest with yourself.

STEP 1 - Figure Out Your Net Income

This is your income minus:

• taxes
• Social Security withholding
• retirement contributions
• and anything else that is taken directly out of your check

For this example, we’ll assume that your monthly NET income is $4,500.

STEP 2 - Add Up Your Monthly Payments on ALL Your Debt

These items can include the following:

• student loans
• car payments
• credit card payments

NOTE: do not include your rent or current mortgage payment.

If this number is MORE THAN 30% of your net income (or $1,350 using the $4,500 from above), STOP! You have too much debt! Your first priority should be to pay down your current debts so that you can better afford a mortgage payment in the future.

STEP 3 - Add Up ALL Your Monthly Living Expenses

Be sure to include EVERYTHING (even items that are marked savings). Be honest with yourself. If it’s something you pay once a year, divide it by 12 to get the monthly amount.

NOTE: Again, do not include your rent or current mortgage payment.

Subtract your monthly expenses from your net income (found in STEP 1). What’s left over is the MAXIMUM amount that you can afford to spend on your mortgage payment (including property taxes, homeowner’s insurance, maintenance, PMI, and any other costs that come with home ownership.)

Keep in mind that this formula does not include any tax benefits that might be available to you via income tax deductions. It would be beneficial for you to sit down with your tax consultant or your tax software and run the numbers to see what type of deductions you might be able to get. Any deductions will lower your monthly costs of home ownership.

What if you’re not ready for a mortgage payment? Don’t sweat it. Pay down your debts, save up some money, and have patience.

For further assistance in figuring your maximum mortgage payment and finding the perfect home...call me anytime day or night!
Andi Thapa
Your Hoover Real Estate Specialist
(205) 602-4588

I'm Back and with a new word...FRUGAL

I took a short break to have my third child, but now we are all used to each other and have a somewhat steady routine.
Having 3 small children with gas prices averaging $4 a gallon and milk almost $2 more per gallon (and can you believe a 20 oz coke is $1.39!) , I'm learning everyday about being more frugal! As I’ve always been frugal, for the most part, I started to look into being greener as well.
For instance: I conserve water in my home, along with electricity. Primarily because I want to keep the cost down. BUT in doing so, I am also being kinder to the environment by not wasting unnecessary water OR using more electricity, burning more fuel and leaving less of a carbon footprint by cutting back.
While it may not be in our nature, we can often make do with less. Look first for monthly expenses that qualify as luxuries. Cut down on meals away from home and cook up all the goodies in the pantry and freezer before you head out to the grocery. Look for other ways to shave unnecessary spending from your budget. Driving is my big issue since I now drive a huge tank to stowaway all my children and get around for work. I am struggling with it, but am having luck finding ways to reduce my driving.
Whether you choose to live frugally, or you choose to live green, or be a tree hugger, or be conservative, it's all the same in the end. Just a matter of the words you put together to describe it
SO...to get back on point...I'M BACK and I'm helping clients buy and sell AND SAVE!
Call or email me now to get information on how I can help save you money when buying or selling your home. athapa@weichert.com (205) 602-4588