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Establishing the Price Range that’s Right for You

Buying a home can be one of the most exciting events in life, however, as with any large purchase, it’s important to establish a price range that fits your paycheck and lifestyle right off the bat. Feeling like you’re shackled to a mortgage payment is never any fun; rather, your goal is to find the home of your dreams at a price you can comfortably afford – and at ZipRealty we’re here to help you make that happen. Our online search tools, coupled with expert advice from your ZipRealty REALTOR^® (including which neighborhoods to search in, inside knowledge of homes currently on the market, and thoughtful counsel that is specific to your home buying situation) is the perfect recipe for finding the home that’s right for you.

How Much Can I Afford?

Start with the Facts

The amount you can spend on a home breaks down to how much of the total home cost (including interest, home insurance, etc.) you can afford to pay off each month – in other words, your mortgage payment. Typically, this amount depends upon:

Your cash on hand. The more you can contribute to the cost of the home upfront (AKA your down payment), the lower your monthly payments will be.
Your monthly gross income. No surprise here, the amount of money you make each month directly affects how big of a mortgage you can afford to pay off.
Your outstanding debt and debt payments. The amount you already owe will subtract from how much you can afford to spend on your monthly mortgage payments.

Figuring out how much you can afford to spend on a home is essentially a balancing act between the three items above (cash, income, debt). The general rule of thumb is that your total monthly loan payments (including your total housing cost, car loans, child support and alimony, credit card bills, student loans, etc.) should not exceed 36% of your gross monthly income. So how much of that 36% should go toward your home payment?

Ideally it breaks down like this: your total monthly housing cost (including mortgage payment, property taxes, homeowners insurance and HOA fees, if applicable) should be (at most) 28% of your gross monthly income, leaving 8% of your monthly income to go toward paying off debt you’ve already collected. In some cases this isn’t possible – if your debt payments currently exceed 8% of your monthly income, lower your mortgage payment accordingly to maintain a debt level at or under 36% of your gross income.

Additional expenses to factor in to your first year of homeownership:

Closing costs
Moving costs
Repair and maintenance costs

Do the Math

Before you get out that pen and paper, check out ZipRealty's “Affordability Calculator” – it’s specifically designed to help you estimate how much you can afford to spend on a home, what your closing costs will be, and how much it will cost you to move.

Get a Second Opinion

With such an important purchase, it’s recommended that in addition to the price range you establish here today, you also consult with an accounting professional or mortgage loan consultant. Your ZipRealty REALTOR� can refer you to one or more local experts that can help you out.

Connect with a ZipRealty REALTOR^®

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