It is important to get this number right.
- Buying a home is a decision you should approach with confidence.
- Here’s an easy-to-use formula for determining how much house to buy.
Home ownership is an important goal for many people, including women. But buying a house can be a challenge for women, not least because of the pervasive pay gap, which often leaves female employees underpaid compared to their male counterparts.
Meanwhile, recently Data from Bank of America shows that 22% of women are not confident about buying a home. If you think about it this way, there is a fairly simple step you can take to determine how much house to commit.
This is to calculate the numbers
Mortgage lenders consider different factors when determining how much to lend to homebuyers. These include your credit score, the amount of your existing debt, and your income. But rather than relying on a mortgage lender to figure out how much home you can afford, it’s best to do your own math and factor in the various expenses you have.
As a general rule, your monthly housing costs should not exceed 30% of your net salary. So if you bring home $4,000 a month after taxes, that means you shouldn’t be spending more than $1,200 a month on housing.
But let’s be clear, that doesn’t mean you should feel free to take on a monthly mortgage payment of $1,200. On the contrary, this $1,200 should include everything your monthly housing expenses. These include things like property taxes and homeowners insurance, and they may, depending on your situation, also include expenses like HOA fees and private mortgage insurance (an ongoing premium that applies when you do not pay a minimum deposit of 20% on a conventional mortgage contract).
It is important to respect this 30% rule so that you do not end up with a house that is not affordable to you, especially if you are buying only one. It’s one thing to stretch your home buying budget when there are two incomes in the mix. But if you’re buying a home that you’ll cover with just one income, it’s important to be careful not to overdo it. You don’t want to go over budget on the home buying front only to find yourself in a situation where you’re forced to charge other expenses, like groceries, to a credit card that you keep deferring The balance.
In the meantime, if you have a lot of other expenses – for example, you spend a lot of money on childcare – then you might want to stick to an even lower limit of 30%. Ultimately, only you know what your various living expenses look like, not your mortgage lender. It is therefore important to have a clear idea of how much you want to spend on a house.
Are you ready to buy?
Sticking to the 30% limit when buying a home could help you avoid the headache. But it’s also important to make sure you have enough cash reserves. That way, if the need for a home repair arises or your moving costs end up being higher than expected, you’ll have a cushion and won’t feel as stressed.
Having a healthy savings balance before buying a home could also help you approach the process with more confidence. And when you make such a big commitment, that’s a big thing.
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Mortgage rates are rising – and fast. But they are still relatively low by historical standards. So if you want to take advantage of rates before they get too high, you’ll want to find a lender who can help you get the best rate possible.
This is where Better Mortgage comes in.
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