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Home Affordability

How much home can you afford?

Home affordability is on the rise, thanks to declining real estate values and lower interest rates. Still, many first-time homebuyers are unsure how much home they can really afford. That's where an Idaho mortgage lender comes in, and -- perhaps most importantly -- a mortgage pre-approval letter. A mortgage pre-approval letter clearly indicates how much you're eligible to borrow for purchasing a home.

However, buyers should take caution when it comes to pre-approvals. A pre-approval indicates the maximum amount you're eligible to borrow, but only you can truly calculate how much you can really afford to spend on a home. That's because the pre-approval process doesn't take into consideration incidental expenses, like entertainment and dining out. These are variable expenses, and each family spends a different portion of their income on incidental expenses.

The best way to really calculate how much home you can afford is by calculating your monthly payment. An Idaho mortgage lender can quickly calculate an estimated monthly payment for you, based on the amount of principal and interest, homeowner's insurance and taxes (if you plan to escrow these items), and private mortgage insurance (if you'll be making a down payment less than 20% of the purchase price).

From there, you can plan out your own monthly budget, based on your fixed expenses (car payments, student loans, etc.), incidentals, how much you spend on items like groceries, and your estimated expenses that will come with your new home. It's very important to consider your additional added expenses, like utility payments. For example, your electricity bill is likely to increase when you move from an 800-square-foot apartment to a 2,000-square-foot home.

No matter what your pre-approval letter says, don't spend more than you can realistically afford on a home. You may be pre-approved to spend up to $250,000, but your personal spending habits might make that a stretch in reality.