How much can I afford to spend on a house? There are four factors home buyers should evaluate when setting a budget to buy a house and avoid this situation.
How Much Can I Afford to Spend on a House?
Taking a realistic look at finances and setting a firm budget is a crucial step in the home buying process, however, research by Owners.com found nearly 40 percent of recent home buyers went an average of $20,000 over budget to buy the “right” house.
“It’s not surprising that recent home buyers find it challenging to find the right home: many markets are still seller’s markets, and buyers often need to decide very quickly whether they should outbid the competition,” said Dario Cardile, Vice President of Growth at Owners.com.
It’s true that buyers don’t have much time to determine whether they should outbid the competition, but buying a house should never be an impulsive decision. If you set a firm budget at the start of the home buying process, it will help you stay objective about how much house is truly affordable given your other living expenses. And while you may ultimately decide to spend more, at least you’ll understand the short-term and long-term implications of that decision.
How to Set a Budget When Buying a House
“Knowing your price range before you start shopping will save you a lot of time and stress,” says Ilyce Glink, publisher of ThinkGlink.com and author of many books on real estate including 100 Questions Every First-Time Home Buyer Should Ask. “Take a look at your finances and ask yourself some tough questions.”
Glink recommends evaluating these four factors when setting a budget to buy a house: down payment, income, debt and location. Ask yourself:
- How much money do I have saved for a down payment and have I researched down payment assistance programs?
- How much money do I take home each month?
- How much debt do I have?
- Have I researched costs in the neighborhood I want to live in? Can I afford them?
These questions will help you set a realistic budget in an area you can afford so can spare yourself the heartbreak of falling in love with a house that’s out of reach. Your next challenge is to find a real estate agent that has your best interest at heart. The right real estate agent will work to help you find a house that’s perfect and doesn’t break your budget.
What Happens When You Go Over Budget on Housing?
How Housing Matters recently revealed how unaffordable housing affects health. They found that those who were behind on mortgage payments or who were in foreclosure were more likely to meet the criteria for depression, more likely to have had a recent anxiety attack and had a higher likelihood of reporting poor health.
When families spend a higher portion of their income on housing costs, they spend less on other needs like healthy eating, exercise, preventative care and they’re more likely to postpone medical or dental care. They’re also saving less, if they manage to save at all, for emergencies and retirement.
If the house your heart is set on buying isn’t within your current budget, taking out a larger loan to purchase it isn’t the best decision, but these two options are:
- Save more towards a downpayment and find a similar home when you’re ready to buy.
- Let it go and fall in love with a house that’s within your budget.