How Much Home Should I Buy?

August 26, 2016
How Much Home Should I Buy?

Buying a home in the Atlanta real estate market is a long-term investment, so most people think you should buy as much house as you can possibly afford. But this is not always the best approach. There are really two different avenues to consider before buying a home:

  • How much can I afford?
  • How much home do I need?

How Much Can I Afford?

Let’s start with the financial aspect. Looking at your income, debt and monthly expenditures, how much can you actually afford?

To determine how much you can afford, you need to figure in:

  • Gross Annual Income
  • Down Payment Amount
  • Monthly Debt
  • Current Mortgage Rates
  • Additional Home Expenses like Property Taxes and Insurance

Keep in mind – the cost of your home, including taxes, maintenance, insurance and other costs, should not exceed 30% of your monthly pre-tax income. The sum of all your debts, including other expenditures like car payments, student loans or credit card payments, should not exceed 36% of your monthly pre-tax income.

Before beginning the house hunt, you should get pre-approved for a mortgage so you know exactly how much you have to spend on your new home. If you haven’t already, you also need to start saving for your down payment and other associated costs, such as appraisals and closing costs. Your Better Homes and Gardens Real Estate Metro Brokers agent can help connect you with mortgage, insurance and closing professionals to help you get a good perspective on the home buying process.

How Much Do I Need?

If the last few years have taught us anything, it’s to never buy more house than you can afford. You should also never buy more house than you actually need.

Even though most lenders will tell you spending up to 30% of your monthly income on your mortgage is perfectly acceptable, spending less is even better. There’s a term called “house poor” – meaning you can afford to live in your house, but that’s about it. You spend too much of your monthly income on housing expenses and can’t afford to enjoy other things such as eating out, concerts, vacations and more. You definitely don’t want to find yourself in this situation! The goal is to get as much as you can on your wish list without becoming house poor.

Sometimes, answering the question of how much you can afford is really the wrong thought. Instead of it being all about how much you can afford, think instead of how much home you actually need.

Think About Your Future

Even though you can’t predict the future or talk to your future self, you need to think about where you see yourself in 5-10, or even 15-20 years.

Then, think about the following factors:                       

  • How long do you plan to live in this home? Is this a starter home, or do you hope to raise a family here?
  • How big is your family? Is it going to continue to grow?
  • What are your space requirements beyond the usual count of bedrooms and bathrooms? Do you need an office? A play room? A guest room?
  • Where do you desire to live – in a certain school district or near work or family? And will those factors change within the time frame you hope to be in the home?

Don’t feel pressured to buy the biggest house possible. If you don’t absolutely need the $400,000 house, don’t buy it. A $300,000 house might do just fine, and you would have the extra $100,000 to spend on vacations, put into retirement… the possibilities are endless.

It’s all about finding a balance between what you can afford and what you actually need. Once you achieve this balance, you’ll be able to thoroughly enjoy your new home.