How Much Can You Afford to Pay for a Home?

To decide how much you should pay for a home, consider the following factors - How much can you afford to pay? How much do you feel comfortable paying? How well priced is the home? What is the home worth to you? Are others trying to buy the home? How easy or difficult will it be to find a similar home?

To find out how much you can afford to pay, prepare a financial statement including all of your assets and liabilities. Your assets should include such things as savings, stocks, bonds, retirement accounts and equity in any property you own. Your liabilities are basically what you owe: your car loan, mortgages, student loans, unsecured loans and credit card debt.

Next, call a mortgage lender or loan broker and discuss your financial situation with him or her based on the information in your financial statement. Ask to be pre-qualified for a mortgage. This will tell you approximately what size mortgage you can qualify for. If you are serious about buying a home, you should then get pre-approved for a mortgage. This involves completing a loan application and having your financial capabilities verified by the lender.

What price you can afford to pay also depends on how much cash you have available for a down payment and closing costs. Closing costs vary from one location to the next. Your loan agent or real estate agent can give you a closing cost estimate.

What you can afford to pay may be more than you want to actually pay for a home. Perhaps you're planning to take a year off to return to graduate school. If so, you may want to keep your monthly payments lower than the lender says you can afford. Or you may be saving for your children's education. In any case, it 's not a good idea to deplete all of your cash reserves to buy a home. Make sure you reserve enough cash for unanticipated emergencies. Also, your new home will require maintenance, so be sure to include this in your calculations.

Deciding how much to pay for any given home depends in large part on how well priced it is. It also depends on market conditions. A well priced listing is one that's priced close to what the property is likely to sell for. In a hot seller's market, a well priced listing may sell for the full asking price, or more, if there are offers from several buyers.

In a slow market, however, where there are plenty of homes for sale, a listing may sell for considerably less than the list price. And in any market, there are always sellers who overprice their homes for the market.

First Time Tip - To determine if a listing is well priced, ask your agent to give you information about similar homes that have sold recently in the neighborhood. Also, make sure you look at all of the similar listings that would be considered competition for the home you're considering. You may find another listing you like just as well for a lower price.

Many buyers wonder if they should stretch financially to buy a home. In some cases, it does make sense to stretch beyond your comfort zone. For example, if stretching enables you to buy a larger home that will suit your long-term needs, this could actually save you money in the long run. Buying and selling homes is expensive.

The Closing - Don't exceed your affordability comfort zone by too much. But don't lose out on a house for just a small amount of money.

For additional insights, visit the Tools section of this website where you will find utilities that will help you further estimate how much you can afford. If need a mortgage broker, give us a call -- we know people who can give you professional, honest, no obligation help.

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The information included at this site, or received from this site, may not be applicable to every situation. Every property, market and personal situation is unique. The formulation of an effective property marketing or purchasing strategy requires careful analysis and planning with a real estate professional. The authors make no representation or guarantees through the presentation of this information. Federal, New York State and local laws prohibit discrimination because of race, color, sex, religion, age, national origin, marital status, familial status or disability in connection with the sale or rental of residential real estate. Coach Realtors does not knowingly accept advertising on this website in violation of these laws. Coach Realtors will not be responsible for misinformation, misprints, typographical errors, etc., which appear on this web site. All offerings are subject to errors, omissions, prior sale, change of price, or withdrawal with or without notice. All facts should be independently verified by prospective purchasers.