If you can stick to this strategy you will have all of your expenses accounted for, be developing a solid financial cushion, and have a bit set aside to have some fun. The idea is to manage your money actively. Take your total monthly income and divide it into the three categories below. This approach makes it simple by dividing your expenses into three categories: fixed expenses, financial goals, and flexible spending. You don't want to have a house that adds stress to your financial situation.One common method for creating a budget is the 50/20/30 strategy. You have to put your priorities in place and look at all your goals. "But most people don't consider saving for the future. ![]() I should be able to afford this,'" says Mary Beth Neeley, a certified financial planner and financial advisor at Wealth Enhancement Group, a financial planning firm in Jacksonville, Fla. "People think, ‘I'm making really good money. If you have enough for a 20 percent down payment, the maximum house you can afford is $300,000. So taking into account homeowners insurance and property taxes, you'd be better off sticking to a mortgage of $240,000 or less. That might sound exciting at first, but with a monthly payment of about $3,225, it would eat up more than half your take-home pay.įollowing Kaplan's 25 percent rule, a more reasonable housing budget would be $1,400 per month. Based on your DTI and depending on your other debts, you could be approved for a mortgage of $600,000. Let's say you and your spouse make a combined annual income of $90,000, or about $5,600 per month after taxes. A common measure that brokers use is the debt-to-income ratio (DTI), which, for a qualified mortgage, limits your total debt payments, including your mortgage, student loans, credit cards, and auto loans, to 43 percent. They use various calculations to figure out how much you can afford, and the amount is often much higher than financial planners recommend. This goes for folks who rent, too," Kaplan says. "Housing-including maintenance-ideally shouldn't consume more than 25 percent of a household budget. There's a straightforward way to make sure you can afford your mortgage while managing your other goals, according to Eve Kaplan, a certified financial planner in New Jersey. One-third of buyers report that they spent more than they expected to on their home, and nearly one-third put down a higher down payment than they anticipated, according to a June survey by CoreLogic, a real estate data analytics firm. Meanwhile, the number of homes priced above $750,000 rose 11 percent from a year ago.īuyers say that those high prices are forcing them to spend more than they planned. In May the median listing price for a home rose 6 percent from the previous year, to $315,000, a record high, according to a report by. ![]() With home prices on the rise in many parts of the U.S., keeping things affordable is getting harder to do. Many people focus on the number of bedrooms or the quality of the kitchen appliances as they contemplate where they want to live.īut new homebuyers shouldn't let considerations like those persuade them to buy a home that's more expensive than they can comfortably afford. Buying a new home is a big decision that involves a whole lot of smaller ones.
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