Buying the first house is a dream that many Americans strive for, but it is becoming increasingly difficult. Today, it is harder than ever to save enough for a first home, leaving many Americans unsure about how much they should spend. Spending too much leaves you in financial ruin and will have you struggling to pay off a mortgage.
On the other hand, being too stingy may leave you with a house that is too small or unable to support an entire family. So exactly how much should you spend when you take your first steps to buy a house? Consider the following factors…
The most obvious factor that will influence the amount you can spend on a home is the amount of money you have saved to buy a home and your ability to save more. If you have a lot of money saved up, then you’ll be able to spend a lot on your first home.
Even if you don’t have a lot saved up, if you’re in a position that grants you a lot of financial flexibility and allows you to save quickly, you will soon reach a point where splurging on a home is realistic. However, if you’re struggling to save money now and don’t have a lot already saved up, then it’s probably best to not splurge on a home.
A common rule that is applied regarding housing expenses is the “28% rule”. This rule states that you should never spend more than 28% of your gross monthly income on housing expenses.
So according to the rule, if you make $5,000 a month, you should be at most spending $1,400 a month on your monthly mortgage. While you don’t have to stick exactly to this rule, it gives you a nice guideline to follow and provides a better understanding of what you should be paying for your home.
A major factor that affects how much you should spend on your first home is the number of current debts you have. Even if you have a large amount of savings, you still might not be able to afford a home if you’re drowning in debt.
Monthly payments for things like credit card bills and student loans may be manageable now, but a monthly mortgage payment may be too much to handle. While you don’t have to be debt-free when you buy your first home, having a lot of debt will definitely limit the amount you spend on your first home.
One thing you want to keep in mind when looking at the list prices of homes is the other expenses you’ll incur. When buying a home, the down payment and mortgage isn’t the only thing you’ll have to pay.
Other costs such as closing costs, property taxes, and real estate agent fees should all be factored in the calculation of overall expenses. You don’t want to splurge on a home that has a high list price, only to be scrambling to pay the other fees later.
- Top Financial Mistakes that Hurt Your Family
- Can you still save even if you have debt?
- Achieving and Living in Our Dream Home
- Reverse Mortgage Questions and Answers
- How to Get a Housing Loan in the Philippines