I want to buy a home for my family, but I don't want to get in over my head. How do I know if a house price is out of reach? Any rule of thumb ideas?
It's great that you're thinking ahead before you make the leap into home ownership. Planning can make all the difference between an affordable home and a financial burden.
Do a little online research for the type of home you want to own, in the neighborhood you prefer, and find the average cost. Most real estate websites have a mortgage calculator that will estimate the monthly mortgage payment based on current loan rates available in your area.
In general, the basic costs of a house are twice the mortgage payment. So if your mortgage is $500 per month, it will cost another $500 per month for insurance and property taxes.
Other factors to consider are increased utilities and regular maintenance costs. You may also have a longer commute or need new furniture and appliances. Don't forget the cost of moving, whether it's across town or across the country.
Make a list of all these costs. Some will be every month, others once or twice a year, others every year or two. From the total, calculate the true monthly cost of a new home.
Now comes the hard part. Total your current spending for the same housing costs that you expect for the new home. Some may be zero, but it's likely that most will be less. Subtract what you currently spend from the estimate for the new house.
Can you afford the difference?
If you think you can, try saving that difference every month for six months. Not only will you know that you can afford the increased costs, but you'll also have a tidy sum to use as a down payment or to cover moving costs.
But if you can't save that extra money every month and never touch it, you really can't afford the house you chose. You can either find a less expensive home or keep trying to save until you are successful.
Knowing that you can truly afford the home of your dreams will give you confidence when you actually go house-hunting.
Try out some mortgage calculators. Bankrate.com is a good place to start, or google for other sites.
Some other points to remember about how much home you should buy:
School district - If you have children or plan to in the future, this will become an important consideration.
Commute time - Consider the amount of time on the road you spend getting to work. Long commutes come with greater expenses in addition to time.
Lifestyle - Is your new home close enough to activities/shopping that you utilize? Are there gas, grocery, restaurants, hardware, pet services and other stores that you frequent, nearby?
Crime - Everyone wants to live where it is safe. Don't overlook this statistic for your potential area.