You know you want to buy a home, but you’re not really sure how much home you can afford to buy. That can be a real problem – especially if you dream of owning a four-bedroom Colonial, but you really can only afford a two-bedroom ranch.

Here are some things to consider when figuring out how much you can spend on a home:

• Have you saved money for a down payment? A smart rule of thumb is to have 20% of the home’s purchase price saved. This percentage will improve your chances of getting a mortgage, keep you from paying private mortgage insurance and lower your monthly mortgage payments.
• What’s your salary? Generally, you can purchase a home that costs two or three times your annual salary. However, this is only an estimate and doesn’t account for your monthly bills.
• Follow the 28/36 rule. Your monthly housing payments, which include your mortgage, insurance and property taxes, shouldn’t be more than 28% of your gross monthly income. Ideally, it should be less. Your debt-to-income ratio, which compares how much money you owe (to credit cards, car loans, student loans, etc.) to your income, shouldn’t be more than 36%. Again, it should be much less. Once you know both of these numbers and your down payment amount, you can figure out what you can afford for a maximum monthly mortgage payment. Here’s a simple Home Affordability Calculator you can use to help you determine this number.
• Remember, you’ll have other housing costs. Your monthly mortgage payment isn’t the only cost associated with owning a new home. You also need to include homeowners’ insurance, property taxes and homeowners’ association dues in your housing costs. Additionally, you may have higher monthly utility costs for your new home. And don’t forget any moving costs.
• Consider other budget needs. In addition to monthly housing costs, you’ll have other expenses you must pay, like food, gas, clothing, etc. Don’t forget to consider these items when determining how much home you can afford.

Before you start shopping for a home, it’s best to meet with reputable lender or mortgage broker to discuss your options for financing your purchase. The mortgage specialists at Grandview Lending in Indianapolis can help you get preapproved for a loan based on verification of your income and credit. Preapproval will help you know exactly how much you can afford to pay for a home. That way you can use your time wisely when shopping for the perfect home in the price range you can afford. Contact Grandview Lending today to start the loan application process.

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