The bottom line: Don’t buy a house you can’t afford. However, “affordable” is a nebulous term that can mean something different for each individual. Buying a home is likely to be one of the most significant purchases you will make in your lifetime.
To begin the process, you’ll need to define your budget and get a mortgage pre-approval to shop with confidence. Most sellers will not even look at your offer without a pre-approval letter from a qualified lender.
Critical things to keep in mind when figuring out your homebuying budget:
- Just because you can afford the mortgage payment doesn’t mean the property is within your budget.
- Calculate your debt-to-income ratio.
- Consider monthly expenses and gross income.
- Keep other homeownership costs, such as homeowner’s insurance, repair expenses, and property taxes, in mind.
- Ideally, you should be able to afford to put at least a 20% down payment on your home.