To determine how much house can you really afford, you must look past just the mortgage. We meet with clients frequently who have “buyer’s remorse” because they realize they cannot afford their new house. One client made their first payment and realized it was too expensive! Yikes!
Capital Budget Strategies, LLC, Austin’s best Financial Coach, can help you determine how much house you can afford. For only $149, we will help you create a personalized Budget, determine your Net Worth, review your Emergency Fund savings and retirement plans. Then based on your numbers, we will follow this guide:
STEP 1. Based on your Budget, how much can you realistically afford? Suppose that figure is $3,000 dollars.
STEP 2: Try to save 20% of the house price as a downpayment. Any less than 20%, you will be required to purchase private mortgage insurance (PMI). Currently, PMI for a $400,000 house is approximately $330/month.
STEP 3. Determine your property tax. Texas has very high property taxes, expect to pay around $8,000/year. That equates to saving $665/month.
STEP 4. Determine your home insurance costs. For a $400,000 house, expect to pay close to $1,400/year or saving $116/month.
STEP 5: If you are required to join a Homeowner’s Association, that could be another $50/month.
STEP 6: Now for all the extras: lawn mower, drapes, furniture, home maintenance, utilities, grass sod, new fence and maybe even new windows and doors. Plus, you need to start a “home maintenance” fund and deposit at least $250/month for the unexpected plumbing, electrical or roof issues that will occur.
Now that we have the “extras’ figured out, let’s see how much mortgage you can afford.
$3,000 available per month, based on your Budget
- $330 PMI
- $665 real estate taxes
- $116 for home insurance
- $50 HOA fees
- $250 for future maintenance
Total available to pay mortgage: $1,589
So, with good credit and Texas mortgage rates about 7.5% for 30-year fixed loan, and you put 10% down, your $1,589 will allow you to purchase a house valued at just $250,000.
If you put 20% down, you can afford a $300,000 house.
Another trick: Remember, your Realtor earns commission on the price you pay. The higher the price, the larger their income. They are working against you. Tell your Realtor up front, under no circumstances can you afford a mortgage over $1,589. If he or she shows you a more expensive house and tell you with a few less dinners out, you can afford $1,700 – get a new Realtor!
Contact Capital Budget Strategies, LLC for expert advice. Our Austin Money Coach will meet with you one-on-one via Zoom Video Conferencing. Together, in approximately 4 hours, we will review your numbers, set up your Budget and determine the most house you can afford.
Owning a house is expensive! The more you save for a downpayment, the more house you can afford. Then go find an honest Realtor!