5 Useful Tips: How Much Can I Spend on a House?
Buying a house is never simple. You need to spend a lot of time planning and preparing for it. And usually, the first step that you do is to determine how much you can spend on a house. This will determine the next steps that you are going to do to buy and keep your house. Hence, this is the most important question that you should answer. And, you should not answer this without backing it up with facts. Doing so will not only help you pay off your mortgage faster but will also enable you to be financially comfortable when doing so.
5 Tips in Determining How Much to Spend on a House
To determine this, you should follow these five tips carefully. Take time to absorb these as they will help you buy a house that you can actually afford and not something that will requires you to sacrifice your life trying to pay for a house that is too expensive for you:
- Get a financial planner.
You should not depend on your broker or your mortgage lender or even your relatives and friends. Unless they are a financial planner, you should not take their advice too seriously even if those suggestions are from good intentions.
Financial planners are capable of computing your cash flow now and in the future so they know how much you can spend – from the down payment to the loan fees and monthly mortgage payments. They are trained, educated and certified to do this, which brokers and other people are not. So, even if you think that hiring a financial planner is expensive, it will pay off big time in the future when you do so.
Remember that brokers are there to sell you a house. Mortgage lenders are there to earn money out of the loan via the interest payments. On the other hand, a good financial planner will help you plan your finances wisely.
- Do the math on your own.
Regardless of whether you’re asking for professional advice or not, you should do the math on your own too. This way, you will see firsthand what your expenses are and what payments will be added to your monthly bills once you get your house.
A good rule of thumb is to get a house that has a price of only two to three times your yearly income or less. This way, you can afford the monthly payment without sacrificing other bills and savings that you have.
- Don’t rely on banks and lenders for computation.
You might ask banks and lenders the first time you talk with them. But, their answers are not always reliable. These financial institutions will earn from your loan so they will likely push you to your maximum debt capacity. These institutions operate with profit in mind so as long as they’re sure that they can earn money off of you, they’ll give you a loan without considering how it’s going to affect your whole financial standing.
That sounds good if you want to buy the house of your dreams but as for your financial condition, it will make things worse for you. When you get a loan that is the maximum of your capacity, you might be forced to give up some things that you pay for. Your savings or your investments might suffer because you need to divert your income to paying your mortgage instead of dividing your money to all of your needs.
- Limit your mortgage to the minimum.
You might be thinking about the maximum amount that you can loan. That is something that you don’t want to do because it will leave you with no excess cash every single time that you pay for your monthly mortgage fees.
Go with the minimum amount that you can so that you can still pay for your other bills, save up for your retirement and get some cash aside for your planned vacation. If you can loan about $320,000, you might want to get a $200,000 loan only so that you can save your money for the years to come.
- Think about your lifestyle.
You will likely think that all the vacations, celebrations and little extras that you had will be gone and will be paid for your future mortgage fees. But, that should not happen.
You should also think about your lifestyle. You should not remove once a year vacations because you have a mortgage loan to pay, especially if you earn a decent income. You should adjust your loan amount so that you can still enjoy life while paying for your home.
It would be much better to be able to afford small vacations while owning your own home, right? So, think about what kind of lifestyle you want before you decide if you’re going to maximize your allowed loan amount or you’re going to settle for a lesser amount.
Of course, this will be completely in your discretion and if you want to sacrifice a few things to get a bigger house or a more beautiful one, it is up to you.
You should not only think about how much you can loan. You should also ask yourself how much you can set aside for your monthly payments. You should also calculate how much you cannot use from your income so that you will be able to determine the right amount of mortgage payments that you can make.
Getting a home loan should not require you to stop enjoying the things that you love such as vacations. Your future should not also be disrupted because you have mortgage payments to make. Do not sacrifice your retirement savings for a huge mortgage loan if you can take a smaller one. It’s about prioritizing which one you want most and which one you know you need most – now and in the future. Doing so will enable you to get a loan that will allow you to get the house that you want but also allows you to live a comfortable life.