Knowing Which Homes for Sale you Can Afford

Driving by homes for sale in your area, or leafing through those glossy magazines, can be really exciting. Buying a home is one of the biggest investments you’ll ever make, and usually marks a major life transition as well. That’s the problem. Too many first time homebuyers are so swayed by the excitement and opportunity that homes for sale represent, that they forget to look at the most basic factor: what can I afford?

Finding Homes for Sale in Your Price Range

It sounds simple. Take what you’re paying in rent and apply it to a mortgage calculator to determine which homes for sale are in your price range. Please- wait. This is a rookie mistake that accounts for a huge number of homes for sale on the market each year. Because the buyers didn’t understand the true costs of home ownership the home went into foreclosure or they sold it and moved into a cheaper one.

Owning is not renting. It’s that simple. The most basic rule of thumb is that you should add 40-45% to the base prices of the homes for sale you look at when calculating true monthly cost. Why?

Well, that 40-45% is what it will take to cover home insurance, property taxes, maintenance and repairs, and PMI (Private Mortgage Insurance) on the homes for sale you like. So if you are looking at homes for sale around $250,000, you really need to start calculating your monthly payment from a price of $362,500. Sobering isn’t it?

How to Test Drive Homes for Sale

Once you’ve calculated the true monthly costs of the homes for sale that you want- give them a test drive. If the monthly mortgage payment is higher than your current rent, put that extra money into saving for a few months. If you can do this, then you can easily afford the homes for sale in your price range. And don’t be discouraged if you have to move down in price range and get less of a house than you really want. This is why they’re called “starter homes.”

If you look at homes for sale in a lower price range than what you really want, just come up with a plan for your next move. There will still be plenty of homes for sale on the market in a couple of years. And now that you understand the true costs of home ownership, you can plan ahead, put money aside for a larger down payment, and get into the home you want when you can really afford it. One of the benefits of taking this delayed gratification route is that you can avoid PMI costs completely by having a 20% down payment.

Looking at homes for sale is exciting. But actually buying a home should be a well-planned process with few big surprises. Knowing the true costs of homes for sale will ensure that home ownership is empowering, not overwhelming.



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