A home buyer speaks with a mortgage officer about how expensive of a mortgage she can afford.

Affording a Mortgage

Updated January 5, 2019 . AmFam Team

Before you start the exciting process of searching for your first home, you need to know how much you can afford to spend. Check out our tips for buying a house and getting a mortgage you can afford.

In the market for a new home? Congratulations! Before you start your search, narrow down your list of potential abodes by figuring out how much mortgage you can afford. Check out our tips for finding the perfect home with an affordable home loan.

Assess Your Financial Situation

Understanding your current financial situation down to its finest details is crucial before you start your search for a home. Check out our tips for getting your arms around your family’s finances:

Calculate your income. Take your monthly income (and your significant other’s, if applicable) after taxes and add it together.

If you or your spouse are paid hourly rather than by salary and/or work an irregular number of hours per week, err on the side of caution and multiply your hourly rate by fewest number of hours you’ve worked in a month in the past year.

Check your savings. When you purchase a home, you’ll need to pay a down payment up front. And if you can put more down, it will either lower your mortgage payments or allow you to buy a higher-priced home. You should be saving up money for a down payment well in advance of beginning your home search.

If you put down less than 20 percent of the home’s cost as a down payment, you may be required by your lender to pay for PMI (private mortgage insurance). This helps the lender recoup some of their losses if you stop making your payments.

Use the 28/36 rule. One financial rule of thumb is that you should never pay more than 28 percent of your monthly take-home pay on a mortgage or rent, and never more than 36 percent on all combined debts. Keep in mind the 28 percent figure should be an absolute maximum — in fact, most lenders will not approve you for a home loan if your mortgage payments would be more than 28 percent of your monthly income.

No matter the type of debt, whether it be a car loan, credit card payments, student loans or other debts, it should never eclipse 36 percent of your monthly income when added to your housing payment.

Get pre-qualified for a mortgage. Want to take a lot of the manual work out of the process and make it easier altogether? Get pre-qualified for a mortgage! It’s a great way to get a dollar-limit on what you can realistically afford to pay each month on your home loan.

Account for Other Expenses

There’s more to financing your home than the down payment and your mortgage — make sure to account for these costs when finding out how much you can afford to spend on a home:

Homeowners insurance. Most of the time, the more expensive your home, the higher your home insurance will be. It will also depend on the amount of coverage, add-ons and other factors — talk to your American Family Insurance agent for more information. Regardless of cost, most lenders will require you have some level of homeowners coverage in order to get financing.

Home upgrades. Unless your new house is absolutely perfect — the right color scheme, excellent appliances and pristine flooring — you’ll want to account for any upgrades you’ll be making. Whether your remodeling effort is minor or full-scale, check out our tips for saving money and getting your insurance just right for the process.

Other real estate, bank and home-buying fees. There’s no shortage of small charges from your lender and real estate company when you’re buying a home. We’ve put together an exhaustive list to make sure none of these fees surprise you during your home-buying process.

Find Your Perfect Home

After you’ve prepared yourself and your finances for buying a home, be smart in your search for a new home. Use these tips to make sure you’re making the right choice for your family:

Pick a good location. Whether it’s proximity to your family, work, school or any other important part of your life, location is key. Having a home close to your job or school will cut down on stressful commute times, but be aware that location does have a big impact on the price of a home. Be prepared to consider some concessions on location in return for a better price.

Have a plan of attack. Know what you’re looking for from the get-go. Going into the home-buying process without knowing what you’re looking for can make it all the more stressful. Sit down with a realtor and let them know what you want in a home — it’s their job to help you find exactly what you’re looking for.

Check out our buyer’s guide. Looking to buy your first home? Our home buyer’s guide will take you through all the necessary steps from saving up for a down payment to signing papers on closing day.

Talk to your American Family agent. Your agent will help you prepare to add or change your homeowner’s policy. Plus, they can also assist you in adding extra coverages that will help you protect everything you’ve worked for.

Ready to get started? Get in touch with your agent (Opens in a new tab) today and ask how your homeowners insurance can give you the peace of mind you deserve.

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