How Much Home Can I Afford?

Many people begin their home search online and ultimately come across the perfect home. They want to make an appointment to view the home and decide it’s just perfect. They have run all the numbers on a mortgage calculator and accordingly, believe they are looking in the right price range. But 9 times out of 10 there are costs they did not consider. It is always best to speak with a lender and know your purchasing power before you start looking at homes. A lender can provide you with the estimated costs associated with your mortgage.

How much home can I afford?

The most important consideration prior to searching for your first home is to have a very serious conversation with yourself as to what is a comfortable housing budget. Meet with your realtor who you are about to start building a relationship with and discuss the cost of homeownership in your area. Talk about the cost of insurance, taxes, utilities, and listen closely. Understand that the numbers you hear are good estimates but there are many variables. Your realtor is someone who has gone this route many times in the past and working closely with them will help you to avoid surprises. Take all the information you can gather and start working on a comfortable housing budget.

Additional Costs of Buying a Home

There are some specific costs of buying a home many first time home buyers don’t know about or consider when using those online mortgage calculators. There are both upfront and monthly costs which have to be figured inwhen your deciding what a comfortable payment would be for you. Since the first time home buyer generally has less downpayment, they will be paying mortgage insurance premium. If you have less than 20% down, you will also have mortgage insurance premiums.

• On an FHA loan, mortgage insurance has an upfront fee, which can be financed into the loan, therefore, making the loan balance higher as well as the monthly payment.

• On both a conventional loan and FHA, there will be monthly payments for property mortgage insurance, as well.

• Closings costs include loan costs, lender’s title insurance, first year’s homeowners insurance, escrow accounts, appraisal and other miscellaneous fees.

• Home Inspection is another cost you will incur upfront

Choose the Best Home You Can Afford

In real estate, they say it’s all about location, location, location. The Indianapolis real estate market is no different. There have been many foreclosures in Indianapolis and it is often tempting for first time home buyers to accept a lower priced home than a home in an area they want to live. It is wise advice to choose an area first or a couple areas of town, then narrow your search to homes in that area within your price range. It is also worth taking a look at a smaller home in great shape, than a larger home that needs too much work.

Mortgage Preapproval

Housing budget in hand, its time to write down your additional living expenses such as the cost of your automobile, food and entertainment, as you prepare to seek mortgage preapproval. Armed with the knowledge that you are ready to be a home buyer, it is time to speak to a mortgage professional. Very often the mortgage person you speak to will have worked with your realtor in the past. They will appreciate that together you and your Realtor have had a realistic financial conversation and thought about the mortgage that you will need to purchase your first home.

Your mortgage broker will reconfirm that your budget will allow you to qualify for the loan you desire. They will discuss with you down payment requirements, and closing costs. As a first time home buyer it is imperative that you start your home search with realistic expectations about how much home you can afford, an understanding of the process, and a team of professionals, such as your Realtor that you can count on for guidance.