If you’re looking to enter the housing market, check out these five tips for figuring out what you may be able to afford.
If your biggest question right now is “Can I afford to buy a home?” – or “How much home can I actually afford to buy?” – you aren’t alone. As the real estate market continues to shift, many people are wondering how far their money will take them.
From researching your local housing market to exploring home loan options, a few early steps can help you prepare before starting on the homebuying process. Here are five ways to help determine how much house you can afford.
1. Check up on your credit score
Before you’re ready to start the homebuying process, familiarize yourself with your credit score. If you aren’t satisfied with the number, you’ll want to give yourself time to raise it before you apply for a loan – this will be a key factor a mortgage professional takes into consideration. Many major credit card companies will give you monthly updated credit score reports on their websites and apps.
2. Get pre-approved for a home loan
Seek out a local mortgage professional to help you understand what you qualify for and set a realistic homebuying budget. A mortgage prequalification provides a basic estimate of how much you can borrow based on your stated financial situation. When you’re ready, complete a mortgage application in which a lender confirms your qualifications with more stringent documentation and can then provide a formal pre-approval. Working with a mortgage broker may provide an easy way to explore different lenders and loan products that meet your unique needs.
3. Consider how much money you have saved
It’s essential to figure out how much money you’ll be able to put toward a down payment on a home – and this number will impact what your monthly mortgage payments will be, too.
For renters, if your monthly mortgage payment will cost more than your current rent, are you able to afford the difference?
Keep in mind that expenses won’t stop at the down payment and mortgage. Be prepared to cover costs for closing and moving, various fees that may come up in the process, home insurance, private mortgage insurance (if you put less than 20% down), and more. Plus, it’s wise to have a comfortable level of savings for home maintenance and repair.
4. Seek advice from a financial advisor
Meeting with a financial advisor can help you prioritize financial concerns, learn how to manage your money, and plan ahead for the future.
5. Look at data for your local housing market
When it comes to home prices, no two markets are the same – and the cost of living (which includes the expense of homeownership) varies depending on location. That’s why it’s helpful to find an experienced real estate agent who you trust to help with your important transaction. They can help demystify local housing market data, prioritize your wants and needs in your purchase, and get the ball rolling in the home search process.
Understanding local market conditions will also help establish a realistic expectation of what kind of property you can afford in your desired area. Looking at active and recent listings is one way to get a better feel for what home prices are like.
Ready to start your homebuying journey? Consult with a local RE/MAX agent.
Article originally appeared on RE/MAX.
