How much you earn versus how much you pay out on a monthly basis will largely determine how much you can afford to pay towards housing on a monthly basis.
Start with how much you are currently spending on housing and add in how much more you could afford and would be willing to pay towards your housing costs if you were to purchase a home.
Ask yourself the following questions:
- How much are you currently putting into savings, retirement accounts or other investments on a monthly basis? How much of this are you willing to instead use towards your monthly housing expense once you purchase a home?
- Are you expecting any significant changes in your household income? If so, make sure to factor this change into your calculation.
- Do you expect any increase in your monthly expenses in the near future such as having to buy a car, new tuition costs, etc.? These forecasted expenses will decrease the amount that you can afford to spend on your housing expense.
- Do you expect any decreases in your monthly expenses in the near future such as paying off a loan or no longer having to pay tuition costs? If so, this difference should increase the amount that you can afford to spend on your housing expense.
- Finally, consider your lifestyle and items such as eating out, memberships, travel and other optional expenses. Do you expect more of these immediately after buying a home or do you plan to cut back on these expenses so that you can afford to spend more on your monthly housing expense?
When you consider these questions you will be able to determine how much you can afford to spend on what I refer to as your “After Tax Housing Expense”. This is the amount that you must pay for housing after adjusting for the tax benefit of owning a home.
Your “After Tax Housing Expense” is equal to the sum of your monthly mortgage payment, your monthly homeowner’s insurance payment and your prorated monthly property tax payment less your expected mortgage interest tax deduction
With this number in hand we can begin the process of getting you into a mortgage program with payments that you will be able to afford.
Ready to move forward? Give us a call. (415) 345-0794