Determining How Much Real Estate You Can Afford

Real estate is one of the largest investments most people will make in their lifetime. However, it is also one of the safest investments to make. When you buy a home and maintain it for the long-term, the value is likely to increase. There will be times when the value dips and you find yourself wondering if you made the right decision. However, if this is a home that you love and want to remain in, it is worthwhile. Before you do make any buying decision, understand the actual cost of this property to you.

Determine What You Can Afford

Prior to buying real estate, most experts tell homebuyers to focus first on what they can afford. Work with a lender to determine how much of a loan you are able to obtain. When you do this first, you do not end up looking at homes out of your price range. Additionally, you should not simply believe that what the lender tells you it will lend to you is what you can afford. In other words, determine how much you would like to spend per month on a mortgage payment. Then, determine how much of a home that can get you.

Using Calculators

There are various mortgage and loan calculators available to use online that can provide you with a wealth of information. It can help you to see how much the loan will cost you, for example. An amortization table is a spreadsheet of information that shows you some key important facts including how much each of your mortgage payments will be. It also shows you how much of each payment goes towards the interest and the principle on your loan (separately) so you can see where you are in the cycle. It also gives you a few big figures including the total amount of interest you will pay to buy the home and the total cost of the property, which includes both interest and principle.

Use these figures to help you to make a wise buying choice. When using a calculator like this, you can see the difference if you make just a few changes in your monthly payment. For example, if you choose to pay your mortgage every two weeks, you will shave years off your mortgage life and thousands of dollars off your balance.

By working with these tools as well as your real estate agent, you can find the right home for you. Focus on the investment. How much of a down payment will you make? What interest rate do you qualify for from your lender? All of these factors play a role in the overall monthly payment that you will make as well as what you can afford in the long term.

 

Based on the article by Aloysius Aucoin