by Carla Hill
Are you gearing up to buy a home? Now is a great time to make a move in the real estate market. Interest rates are at historic lows. Compare today’s 30-year fixed-rate average of between 3 and 4 percent to the 13 to 18 percent rates of the 1980’s and you’ll see why everyone is buzzing about the great deals to be had!
Additionally, homes are now at their most affordable on record. This is because home values have dropped across much of the nation. There is also a huge supply of distressed properties on the market which sell for steep discounts.
With all these great deals it’s easy to get carried away, but the lesson learned by millions of foreclosed homeowners is to buy within your means. Just because you’re approved for X amount doesn’t mean you should spend that much.
So, how much home can you really afford? Consider the following.
- What is your monthly income?
If you have a salaried job, this can be as simple to calculate as looking at your paystubs, but if you work on commission and tips, it’s important you consider both high income and low income months.
- What is your monthly debt load?
Consider the monthly cost of child support, alimony, student loans, credit cards payments, car loans, and other debts that must be paid each month.
- Is your job stable?
Today’s job market is still a little shaky. While the unemployment rate has improved, many still struggle to find jobs. What would happen if you were to lose your job? Would you still be able to pay your mortgage?
- What are your monthly expenses?
This is different than your monthly debt load. These are extra expenses including: cable, internet, cell phone, gas, food, entertainment, clothes, travel, etc.
- How long will you be staying put?
Homes just aren’t appreciating at the rate they used to. You will probably need to stay put for at least five years before you would break even on a sale.
- How much do you have saved?
Lenders expect for today’s buyers to have at least 20 percent to put down in addition to closing costs. A $200,000 house will require a $40,000 down payment. Do you have this money in addition to an emergency fund? If not, you might want to consider a less expensive house or waiting to buy.