Most home buyers never even think of their budget. Most home buyers do what we did with the advice my Mother gave me. Take your income and multiply by 3 and that’s the home you could buy. So if you make $50K you could reasonably afford a $150,000 home.
There’s different variations to this “calculation” but at the end of the day it’s wrong. Another way that home buyers “decide” what their price range is, by calling a lender. A few years ago, if you had a job you could get as much money as you wanted .. almost. Now they look a lot deeper, but they still give you “WHAT YOU QUALIFY FOR”, not what you can afford. Affordability is different than qualifying.
We recommend setting up a budget. If everyone did it Dave Ramsey’s way then I would be blessed indeed (referring to 20% down on home purchase). Let’s just get started. These are some really simple steps, but should help if you’ve never done this before.
1. Take your take home pay (not your gross) – It’s the CASH you get from your job. (We’ll use $4,000 as our number for easy math) $4,000
2. Subtract any credit card or car payments (Car – $400 / mo Credit Card $200 / mo) $3,400
3. Minus your utility payments if any – this is tricky because a home will likely be more than your apartment or if you’re living with the folks. We’ll go ultra conservative ($400 / mo) $3,000
4. Minus any savings? ($500 / mo) $2,500 5. Minus any Tithe? ($400 / mo) $2,100
6. Minus all the food you might want to eat? PB & J or are you going out? ($600 – family of 3 does this easily) $1,500
7. Minus Gas and anything else miscellaneous ($300 / mo) $1,200 So in this example you’re left with $ 1,200 for a home . It’s this number that you should take to a loan officer, not WHAT YOU QUALIFY FOR. Then they’ll tell you what $ 1,200 a month will buy you. With today’s low interest rates you’re looking at a few thousand over $ 175,000 of Real Estate if this situation fits you.
