How do you know how much you can afford?

Do you have to talk to morgage broker first? DH think that we can afford a certain amount, but it is much lower than what other people we know who make the same amount of money think they can afford. Are we underestimating ourselves, or are our friends aiming way to high?
How did you decide whether or not you would be able to afford a home?

Re: How do you know how much you can afford?

Every situation is different. People who make the same $ have different obligations and debts than others.

We chose to own a good house and still have play money rather than an amazing house and be overextended. So priorities come into play too.

Its what you feel comfortable with. Yes, I have single friends that pay thousands more a month than us but we wouldnt be comfortable with those payments. Even though we make 2x what they do.

Good Luck!

Re: How do you know how much you can afford?

mortgages brokers and website will base what you can afford off your PRE TAX money

I would personally base it off your actual take home-

Re: How do you know how much you can afford?

You can talk to a mortgage broker to get an idea of what a bank would be willing to lend you but I always suggest that people be very cautious with that number. The broker isn't telling you what you can afford...they are telling you what a bank would be willing to give you based on a number of factors...none of which include your everyday expenses.

DH and I have a pre-approval for more than what we believe we can honestly handle. The bank says one thing but when we factor in our monthly expenses such as utilities, other obligations such as car loans, and all those misc items we know we can only do a certain amount that comes well below the preapproval. So keeping that in mind we know what our range is.

It's all comes down to what your expectations are and what you can handle doing. Some people are confident in stretching themselves to the penny and others have to have a specific dollar amount left over each month. Ultimately your views on that along with the actual $$ amount will dictate what you can afford.

Re: How do you know how much you can afford?

Re: How do you know how much you can afford?

i used this approximate formula

take your after tax combined monthly income

take that figure and then subtract out all of your expenses

food
cc bills
student loans
gas, tolls, train (if you commute)
car payments
car insurance
entertainment
etc

then see how much money is left

then take 80-90% of that and that is what you can afford in mortgage/taxes/home insurance prettty much

Re: How do you know how much you can afford?

there was a topic a few weeks ago on home expenses, that helped me alot because I am a first time buyer and have no idea on how much electric and that stuff costs.

and I did it on my after tax income - but banks will calculate it on your gross income because of the tax benefits of owning a home.

Re: How do you know how much you can afford?