First Time Home Buyer Guide
First Time Home Buyers Guide: How Much Home Can You Afford
Step 1: Get Pre-Approved
The only way to truly know how much home you can afford is to ask a lender. Getting pre-approved lets you know how much you can afford before shopping for your home.
What to Know and Where to Find It:
• Income: Stable income assures a lender you can make your monthly mortgage payment.
• Debt: Add up auto payments, credit card payments, student loans, alimony, child support, and other.
• Cash: Total assets, amount in checking and savings accounts, and other investments.
Step 2: Determine Monthly Mortgage Payment Including Escrow
Escrow is a third party account used to retain funds, including the property owner’s real estate taxes and hazard insurance premiums.
Step 3: Understand Bills Associated with Home ownership
Estimate that it will cost about one percent of the purchase price per year to maintain your home. For a $200,000 home, you should budget approximately $2,000 per year or approximately $170 per month for maintenance. Condominiums and co-ops will have regular maintenance fees. You will also have utilities, gas, electric, water, sewage, cable, telephone, insurance, property tax, etc.
Step 4: Compare the Total Costs to Your Monthly Salary
Subtract the total in Step 3 from your monthly gross
Step 5: Test those Numbers for Six Months
• Set up a new bank account.
• Subtract your current monthly rent from your Step 2 total.
• Deposit the difference in these numbers into the new bank account on the first day of each month.
• After six months, determine how simple or straining the process turned out to be.
Step 6: Establish Future Priorities and Plan for the Unexpected
• What are your needs for the new home—appliances, furniture, lawn equipment?
• Is a new car in your near future?
• Do you plan to have children?
• How long can you survive if you lost your job?
*Provided by The Nichols Lending Team
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Data last updated: Jul 7, 2020 10:17:pm.