How Much House Can You Afford?

The amount of house you can afford depends on many factors. If you go by the book, one-third of your income should go towards a mortgage. This is a rigid rule that really cannot gauge what you can afford. There are people who follow this rule, yet have a large debt on credit cards. This defeats the purpose.

The first thing a person should have is an emergency fund. There should be six months of cash available to pay a mortgage should something happen, like losing a job. When this is in place, you can do some math. See what the house will really cost you. This would include mortgage, insurance and real estate taxes. Taxes and insurance are usually included in the monthly mortgage payments. Be prepared for rises in insurance and real estate taxes. Therefore, if you have a fixed mortgage, the bill will still rise because of taxes and insurance.

Emergency repairs have to be made. Heating, roof and water leakage problems are not rare. Money should be available to cover this. Do not forget to count other expenses like car payments.

How much house can you afford? After figuring for most eventualities, a picture of what is affordable is now in view. There should always be a cushion of money available. If the emergency fund goes down for some expense, build it up again.

This is not to say if there is not a cushion of cash, a new house cannot be purchased. A no money down mortgage can be initially taken and changed later, should cash become available. The main thing to keep in mind is that sleep should not be lost by wondering how one bill or the other will be paid or which should get priority. Home ownership should not be a stressful situation. Going into foreclosure should not hang over a homeowner.

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