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Buyer Help: What Should You Spend on a New Home?

Buyer Help: What Should You Spend on a New Home?

If you’ve decided that 2015 is going to be your year for home ownership, congratulations! Buying a new home is exhilarating! However, at times, it also can be stressful, confusing and frustrating.

Preparation is an indisputable key for success in the home-buying process; so, determining how much you should spend before you begin perusing potential dream homes is a certain way to quell frustrations and set realistic house-hunting expectations from the get-go.

But, how are you supposed to know what you should spend or what you can afford to spend on a new home? Whether you’re a first-time homebuyer or not, it can be difficult to determine what you should spend on a house. The reality is that when you buy a home, you’re not only paying for the purchase price. There are other costs associated with home ownership:

  • Property Taxes
  • Insurance Premiums
  • Closing Costs
  • Legal Fees
  • Maintenance Fees
  • Home Repair Costs
  • Possible Homeowner Association (HOA) Fees

To further compound the cost issue, the above factors differ depending on where you are looking to buy. So, as you’re searching for potential homes, it is also important to search for information about the surrounding school districts, crime rate and community construction plans. All of that information plays in to your future home’s value and the additional fees that surround a home’s purchase price.

So, it is obvious that a lot of factors contribute to how much you should spend on a new home; but, simply knowing that does not make the actual amount you can afford any clearer.

The best way to determine how much you should spend on a new home may be to meet with a mortgage lender who can advise you on what you can afford. Lenders will take a look at your overall financial picture, which includes things like your wages, investments and any other income you have. Of course, it also includes expenses like car payments, credit card debt and any other financial commitments you may have.

A mortgage lender also will want to know the amount of your down payment, or how much money you plan to pay up front for a new home. Why? The more money you can put down, the lower your subsequent monthly mortgage payments will be. Depending on your chosen lender’s requirements, a larger down payment may also eliminate private mortgage insurance or PMI.

All in all, experts advise that a new home’s cost should not exceed 28% of a person’s gross income. Banks or lenders will use all of your financial information, plus your intended down payment amount to calculate what you are able to spend on a new home.

But, buyers beware! Although you may be approved to spend a certain amount on a new home, you will want to make sure that you are comfortable with the monthly payment breakdown. Likewise, you will want to make sure that you’re getting the most home for your money. Here is where a realtor can help you to compare similar homes to make sure the home you ultimately choose is worth the asking price.

For more help in determining how much you should spend on a home, try this convenient affordability calculator or contact a trusted real estate professional at Berkshire Hathaway HomeServices The Preferred Realty today.


This post is sponsored by PA Preferred Mortgage:

Pennsylvania Preferred Mortgage is a full service mortgage banker and is a member of the Prosperity Home Mortgage, LLC family. Specializing in residential and refinance loans, Pennsylvania Preferred Mortgage offers a wide range of mortgage products, including fixed and adjustable rate mortgages, jumbo loans, Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, and renovation financing. Learn more at www.papreferredmortgage.com.