Deciding on a budget is one of the biggest steps in buying a new home.
It's a big question that determines everything from where you'll live, who'll have their own room, if the dog gets a yard, or if the kids land in a certain school district: Budget.
Determining how much you should spend on a home is THE big question, and often a very exciting one.
But there's a difference between how much you can afford and how much you should buy.
Often, being able to technically afford a certain home—say, $350,000—may work in terms of your income, but it might make things tight in other areas or force you to prioritize differently.
If you can afford $350,000 with your current income, great! But what about saving for college? Or that annual family trip you count on? Or your goal of paying off debt?
That's where tweaking the question to "how much house should I buy?" Makes sense.
What you CAN buy is up to your lender. And what you SHOULD buy is up to you.
Getting Started Deciding How Much House to Buy
When calculating your budget and deciding what price range you can shop within, you'll first need to look at what you can pay every month, including taxes, fees, HOA dues, and other associated costs.
One way to determine how much you should buy, use the 28/36 rule: homeownership costs should take up no more than 28% of your gross monthly income, and you should not spend more than 36% of your gross monthly income on debts in total, including school loans, car loans, and credit card debt.
Use an affordability calculator, and enter that 28% number.
You'll have to enter information such as the percentage of down payment you can make, as well as the loan term and interest rate, insurance, taxes, and any HOA fees.
Once you hit compute, you'll be able to see what that monthly payment allows you to afford in terms of the price tag on the home.
Evaluate the True Cost
However, as you look at your monthly budget, subtract your monthly home costs and see what's left.
Is it enough for you to live a healthy, balanced life?
Can you continue to support loved ones, pay for health and child care?
Would you have to prolong student debt, or give up membership to a club or hobby that means something to you?
Will you be able to comfortably meet unexpected emergencies and fulfill family obligations?
Sometimes, making sacrifices for the benefit and dream of homeownership is to be expected, and truly worthwhile, and entering into homeownership can feel like a bit of a stretch at first that is then lessened over time as your income increases.
However, it's good to get a feel for that monthly payment and how it will change your monthly budget so you can anticipate and prioritize things that are meaningful to you.
Just because a lender gives you a green light for a certain amount doesn't mean you have to spend it all—you will be the one living with your new budget and financial responsibilities, so making sure you feel comfortable is the most important thing.
A qualified, caring banker can sit down with you and help you run scenarios and ask the right questions to help you make an important decision like how much home you can afford. At Citizens Bank, we're a community-minded bank that puts people first, and we're happy to talk about how we can help make your dreams of homeownership come true.