Shopping for a home, especially your first one, can be tough when you’re not sure how much you can
afford. If you've wanted to live the dream of owning your own home, but haven’t
been sure where to start, I've put together a few tips that can make it easier
to get a handle on where to start.
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| The American Dream |
1. Tax benefits usually mean you can afford more than your rent.
Interest deductions on taxes typically translate into significant savings. Many
people find they can afford about 33% more than their current rent. To get an
idea of what this might be for you, multiply your current rent by 1.33.
2. A home price three times your gross income is usually a
reasonable place to begin. For example, if your household made $75,000 last
year, you could begin looking in the $225,000 range to start.
3. Know how much you can put down. Ideally, you’d want to have 20%
of the home’s price set aside for a down payment. On a $200,000 home, this
would be roughly $40,000. You can definitely put down less money, as low as 3%, but it may result in
higher interest rates (which translate to higher monthly payments). It will still be better and most likely less expensive than renting. If you are a veteran, you can buy a home with no money down, and still get the lowest interest rates.
4. Determine your “debt factor.” Lenders will often cite the 28/41
rule when it comes to your debt. This means that your mortgage (plus taxes and
insurance) shouldn't exceed 28% of your gross monthly income. Your total
payments (credit card, car loan, etc.) plus your mortgage shouldn't come
to more than 41% of your gross monthly income.
The Realtors at Armstrong Field Real Estate specialize in helping first-time home buyers getting themselves
lined up for home ownership. Contact one of our Massachusetts Realtors today.
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