How To Know How Much Home You Can Afford

How To Know How Much Home You Can Afford

With low interest rates and tons of tax breaks, there has never been a better time to buy a home. For new home buyers, this is a dream come true. It can also turn into a nightmare.

If you are a new home buyer, you will be bombarded with loan options, estimates and banks promising you the world. If you buy more home than you can afford, you will be drowning in debt before you have unpacked your good china.

The Lie and The Truth of Home Buying

Warning: the bank will lie to you about how much home you can afford. Why? Because they want to make as much money off of you as they can through interest charges. They will approve a home loan for the maximum amount you can afford.

This is not the amount you should borrow! It does not take into account all of the expenses involved in buying and fixing up a new home (ie painting, new appliances, new flooring etc.). You will be amazed at how fast you can spend even a few thousand dollars.

How to Avoid the Lie.

The best way to avoid the lie is to do the math yourself before you ever talk to a loan officer. To calculate how much home you can afford:

1.Double the income of the person/people who will pay for the home.

2.Make a list of the estimated cost of the all remodels you plan to make.

3.Double that cost and subtract it from the doubled income.

The resulting amount is the maximum you can afford to spend on a house.

Take that figure with you to the bank. Tape it to your computer monitor as you search for your dream home. It will keep you out of a foreclosure nightmare.