If you’re looking to buy a house, you’ve probably wondered at some point how to estimate what you can really afford in {market_city]. And it’s a smart move to figure that out before you ever start looking. Doing some affordability calculations, in the beginning, will allow you shop within your price range and so will save some time and frustration. You won’t do your house hunting saddled with unrealistic expectations.
So, then, in order to estimate what you can really afford in Central Florida, all you have to do is calculate – and all the while being completely honest with yourself – the following . . .
Accessible Financing
The first step is to figure out, as close as you can, how much financing you can actually get. Now, while the amount of your paycheck is the primary factor here, a lender will factor in other inevitable expenses like HOA fees.
In general, banks and mortgage companies have two methods by which they calculate how much they’ll lend, and these are the front-end ratio and the back-end ratio. Whichever formula yields the lower monthly payment, that’s the one you’ll have to go with. The front-end ratio involves the mortgage payment as a percentage of your gross income, usually with a 28% cap. More complex, the back-end ratio deals with your total monthly debt payments as a percentage of gross income and comes in at around 36%. But depending on your employment and credit situation, as well as lender standards, those percentages can be higher.
After-Tax Take-Home Pay
This sounds painfully obvious, but many people really aren’t aware of what their actual net pay is. You have to know this in order the know what kind of mortgage payments you can comfortably handle. If you’re not sure, just go back through several of your latest pay stubs or contact your HR department.
Recurring Monthly Expenses
In order to accurately estimate what you can really afford in {market_city], you’ll also need to figure out exactly how much you have to pay out each month. This would, of course, include standard monthly expenses like utilities, food, gas, phone, Internet, and insurance. But you also need to include such things as entertainment and clothes, which are very close to monthly expenses and make sure not to leave anything out. If you don’t already have a monthly budget in place, you can go back through your checkbook or bank statements to calculate this.
New Expenses
Then you need to take a look at what new expenses you’ll take on when you buy a house. These expenses will vary according to the type and condition of the house and the area and neighborhood where it is located, but will generally include maintenance and repair expenses, HOA fees, homeowner’s insurance, security costs, and property taxes. Also, if it is larger home with lots of amenities there will be things like pool maintenance expenses and landscaping upkeep costs. Also, if you’re moving to a distant suburb far from your job, you’ll need to factor in the increased transportation costs, as well as the larger maintenance costs for your car and the inevitable wear and tear and attendant depreciation.
When you estimate what you can really afford in Central Florida, you’ll know exactly how much home you can afford and where. But the mere fact that you can buy it and make the payments, doesn’t mean that you should. For there are other considerations and contingencies to plan for.