Before you even begin to think about how much you’d like to spend on a home, talk to a mortgage professional and get pre-approved.
So many buyers come in thinking they want to spend X, when in fact they can afford Y. Similarly, I’ve also seen buyers think they can afford Y, only to find out that X is what they qualify for.
Another thing worth noting: Just because you get pre-approved for a certain number – and I hope this is obvious, but I’ll say it anyway – you DON’T have to purchase up to that point. This is simply telling you how much you can feasibly afford to purchase should you wish to go that high. However, 9 times out of 10, buyer will begin crunching numbers and find that what they qualify for is a bit higher than what they’re willing to spend.
What is it you are comfortable spending on a monthly basis for a home, keeping in mind it’s also a best practice to stay cash liquid enough to have an emergency fund?
I like to play a game of Fantasy Home, kind of like the REALTOR version of fantasy sports games. You see a home come on the market for X dollars, knowing that it falls under Y, what you qualified for. However, where will that price point of X put you financially, and will you be comfortable in that area? If yes, then you know that’s a price point you should be considering. If the answer is no, then similarly you know it’s time to trim down that budget to something more in your comfort zone.
After a few homes and rounds of playing this game – itemizing and breaking down the list of expenses making up your monthly payments – you’ll find that it’ll become second nature for you to know whether or not a home that may have caught your eye is well within that range you’re looking at.