"How much house can I afford?" Have you ever asked yourself that question and are still wondering the answer? Well, I have the answer for you.
There is no magic dollar amount that you should be looking for regarding the “perfect home". How much house you can afford is as unique as you are; it's based on many factors, including your location, income, savings, personal preferences, and most importantly, the house-buying plan you have in place.
The most ideal way to buy a house is the 100%-down plan. Sounds weird, doesn't it?! But think how much fun that would be! Don't borrow money. Period. If I can't get you to postpone the purchase that long, I strongly suggest you save a down payment of 20% or more, choose a 15-year (or less) fixed-rate mortgage, and limit your monthly payment to 25% or less of your monthly take-home pay.
You want your new home to be a blessing, not a curse. If you buy a house with nothing down and a huge monthly payment, you're inviting Murphy to move into the spare bedroom. You do NOT want Murphy as a housemate - believe me! Slow down and realistically think through everything before you jump head-first into making this major purchase. If you don't, you'll just be giving Murphy an open invitation to overtake the house.
Here's a quick checklist of important questions to review as you consider how much house you can afford. If you cannot answer YES to these questions regarding the house you have your eye on, then it's not a wise move to buy it right now.
- Can I make at least a 10% (preferably a 20%) down payment?
- Can I keep house payments at or below 25% of my monthly take-home pay?
- Can I afford to take out a 15-year fixed-rate loan?
- Am I working closely with a real estate agent I can trust?
Dave Ramsey is a personal money management expert, an extremely popular national radio personality and best-selling author of The Total Money Makeover. Dave is changing the face of America by helping people get out of debt and build wealth. Ramsey exemplifies his life's work of teaching others how to be financially responsible, so they can acquire enough wealth to take care of loved ones, live prosperously into old age, and give generously to others. Find out more of what Dave has to say about avoiding buyer's remorse .