Budgeting for a home: How much can you afford?
A home is one of the biggest purchases you will ever make. That is why it is important to do your research before you buy, including making sure you can comfortably afford your mortgage payments.
What percent of income should you spend?
Most experts recommend you should spend no more than 25–35% of your income on housing. This rule of thumb helps ensure you have enough disposable income to cover other financial needs, such as everyday living expenses, emergency savings/investments, and retirement contributions.
Set aside your savings first.
Before you settle on an amount for your mortgage, be sure you’re factoring in enough retirement savings contributions to maintain the lifestyle you want.
And do not forget about saving for other financial goals, too. These might include your children’s educations, paying off credit card debt, building an emergency fund, or even saving for family vacations.
Only when you have factored in the savings you need, not just your immediate expenses, will you know how much mortgage you can really afford. And though the price range for your new home may not be as high as you hoped, rest assured that you are protecting your financial security and your family’s wellbeing, long into the future.