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CU Walk the Money Talk : How Much House Can I Afford?

Hello! Welcome to our new web series “CU Walk the Money Talk” where the credit union’s very own, Ashley Scroggins and Lori Hudson discuss personal finance topics that make it easier to digest (and yes fun!). We hope you enjoy our series and make sure to subscribe to get updates when new videos are posted. Enjoy!
Buying a home can be lots of fun. It’s exciting to see all those years of dreaming come to life in a place you can finally call your own. But before you search for homes or find a real estate agent, it’s important to ensure you’re financially ready and can actually afford the house you want to buy. It doesn’t matter if the kitchen is fabulous or the backyard is big. If you can’t pay the mortgage each month or find the cash to fix what’s broken, your home could end up feeling more like a curse.
So how much house can you afford? Watch as Ashley and Lori get down to the nitty-gritty of calculating your home buying budget:

Figuring out how much house you can afford doesn’t have to be rocket science, but determining your budget is the first step to responsible home buying. These home affordability questions can help you buy a home within your means:

  • How much have you saved for a down payment, and is it at least a 10% (preferably a 20% so you don’t have to pay PMI)?
  • Do you have enough cash to cover closing costs and moving expenses?
  • What monthly house payment can you afford, and is it 28% or less of your monthly take-home pay?
  • Can you afford to take out a 15-year fixed-rate loan, or do you qualify for VA, FHA or USDA loans?
  • Can you afford ongoing maintenance and utilities for this home?
  • What does your credit history look like?

Your credit score can determine what rate you qualify for so taking the time to improve this number can save you a lot of money and headaches in the long run.

Calculating the Costs

So how do you figure out just how much house you can afford? If you want to buy a home that won’t bust your budget, you simply need to crunch a few numbers. Follow these steps

  1. Add up any income you bring in each month.
  2. Multiply your monthly take-home pay by 28% to get your maximum mortgage payment (but don’t plan on spending to this limit).
  3. Use a mortgage calculator to determine your budget.
    • Ex: Let’s say your maximum monthly payment is $1,250, you have $25,000 for a down payment, and taxes and insurance will cost about $200 a month. That means you could afford a $172,000 house on a 15-year fixed-rate mortgage at 3.5% interest.
  4. Factor in homeownership costs. Your emergency fund can cover major home disasters. But if you have an HOA or want to save up for a few home upgrades, you’ll need to build room in your monthly budget for those expenses as well.

How to Buy a House You Love at a Price You Can Afford

Want to know the secret to home affordability? Work with an experienced mortgage lender that has your best interest in mind. Our mortgage team will help you get a great rate for the house you love. We’ll work with you to understand the financial path you’re on and offer you the same trustworthy advice no matter your budget so you don’t end up over budget. Take advantage of your expert resources and ask any and all questions that come to mind – you don’t know what you don’t know.
Take the first step and connect with West Community Mortgage today!