The most basic research on homebuying will inevitably lead you to this general fact: houses are one of, if not the most, expensive purchases you’ll make in your lifetime. There aren’t many other opportunities to drop hundreds of thousands of dollars in one sitting… or over 30 years.
This is why setting a house budget is crucial in the homebuying process. Even more modest purchases, like a new car, require examining the bank account, debt and income situation. With a home purchase, this kind of serious financial evaluation is everything if you are to have any hope of success.
Most financial advisers agree that people should spend no more than 36 percent of their gross income on total debt, this includes mortgages, credit cards, student loans, home insurance, medical bills and the like.
Depending on where you live, your annual income could be more than enough to cover a mortgage or it could fall short. Knowing what you can afford can help you take financially sound next steps. The last thing you want to do is jump into a 30-year home loan that’s too expensive for your budget, even if you can find a lender willing to write the mortgage.
Bankrate’s Home Affordability Calculator allows you to plug in all the essential data to produce a budget estimate. This is a great starting point for homebuyers who are ready to begin home shopping.