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How much home can you afford?
Its easy enough to plug your information into an onlinemortgagecalculator and get an answer.
But relying on that information can be financially dangerous at least, according to expert Ramit Sethi.
The goal behind this is to get a more accurate representation of what the house will cost to own.
Industry analysts say the average homeowner pays $18,000 in hidden costs per year.
Thats $540,000 over a 30-year mortgage.
These costs include:
What If You Cant Afford To Add 50% to Your Home Price?
Now that you know Sethis rule, the obvious follow-up is, what if it doesnt work for you?
Sethi advised continuing to rent if you cant follow the 50% rule.
About 34% of U.S. households belong to renters,Forbes Advisorreported.
Using these will help you make amore informed buying decision.
Will I Live Here for at Least 10 Years?
First, consider how long you plan on staying in the home.
Longer tends to be better financially, though every situation differs.
For Sethi, 10 years is the threshold.
Will Housing Cost Lower Than 28% of My Monthly Income?
Next, consider what percentage of your monthly income housing would account for.
Remember to use Sethis rule of 50% when calculating it.
For example, if your mortgage is $3,000, you should actually think of it as $4,500.
Buying a home may not be awise financial decisionif it costs more than 28% of your monthly income.
Can I Pay 20% for a Down Payment?
If you cant pay 20%, Sethi said to wait until you’re able to.
Doing so may not be ideal, but the sacrifice could pay financial dividends for years.
Will I Be OK If My Houses Value Goes Down?
Next, Sethi said to consider how youd feel if the houses value decreases.
If you wouldnt mind very much, thats a great sign.
Median U.S. home prices have climbed consistently for years.
But housing crashes happen just think back to 2008.
You shouldnt buy a home if you would have to sell in a crash to limit your financial losses.
That could set you back years, financially.
Am I Excited About Buying?
Finally, Sethi wants people to consider how they feel about buying the property theyre looking at.
Or do you feel dread at thework and stressto come?
That answer could also influence whether purchasing is right for you.
Homeownership is an expensive process that can come with a lot of unexpected work.
You want to confirm the reward for all of that is worth it to you.
Otherwise, you may simply be better off continuing to rent.
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