How Much House Can You Afford?
Updated: Dec 23, 2019
“Some people live while others merely exist “, is what you feel when you see the picturesque homes that people live in. “ Some people have it all”, is what you tell yourself when you’re in a neighborhood of eye-catching homes.
When it comes to buying a home, daydreaming is just the beginning of this long road fraught with dangerous unforeseen curves. The very first question which many people do not ask themselves is, “How much of my dream home can I afford?” or “Can I really afford my dream home?” To answer these 2 questions you need to ask and answer these 5 other questions.
1. What Are My Mandatory Monthly Expenses?
Everyone working professional has monthly obligations that must be taken care of come what may. For example, for families, it may be food, shelter, school fees and rent. For young professionals, it may be rent and payment of student loans. The key is to make a list of expenses that belong only to you and how they shall be paid.
2. Who Are My Dependants?
Who relies directly on your income and would be adversely affected if it were not there? These dependants such as family members and their requirements need to be factored in. This is because their quality of life is directly affected by your financial input or lack thereof. Note down each dependants’ periodic requirements and how you plan to handle them as they fall due.
3. How Much Disposable Income Do I Have?
Disposable income is the part of your earnings that has no obligations. For example in this case, it may be the amount after you have deducted the monthly obligations and dependent requirements. Any home financing plan should never exceed the amount of disposable income available. This is to ensure a stress-free home loan repayment.
4. How Much Am I Willing To Pay Monthly?
You may not want to utilize all your disposable income for home financing depending on your unique needs and requirements. The main question you need to ask yourself is, “how long am I able to repay my loan?” This shall depend on the home you wish to purchase.
5. What If Things Change?
This seems like a pessimistic question but it is a very wise question to ask because life is never constant but full of unexpected changes. After all, it is better to be forewarned and forearmed. Difficult questions to pose can be “what if I am unable to continue making payments?” or “what arrangements are in place in case the worst should happen?” This is why many home loans have various insurance covers so that the home acquisition journey ahead can be made as smooth as humanly possible.
After you have asked and answered these questions above you shall be well on your way to having a very realistic picture of the house you can afford. As for where you can find it, working with a real estate professional will ensure that you do not walk this journey alone. Happy house hunting!