Budgets and Affordability

“A goal without a plan is just a wish.” – Antoine de Saint-Exupery

How much home can I afford? If I want to build a new home, can I get approved for a construction loan?  Whether you are planning to build, or buy existing, balancing your needs and wants with your budget is essential.  We all want to live a luxurious home, full of the finest amenities; unfortunately not all of us can afford ocean front property in Malibu.  Some of us can’t even afford ocean front property in Arizona!

So where do you start?  Start with the 28/36 rule.  Many lenders use this to determine eligibility for borrowers.  “28” refers to the percentage of income expenditure that can be allocated toward your residence.  This number will include the loan principal, interest, taxes, and insurance.  “36” refers to the percentage of income that can be allocated to your total debt load. This number includes any other monthly debt you have incurred, such as car loans, credit card payments, or student loans, in addition to, your housing expenses.  The 28/36 rule is a baseline that lenders often use, and there are exceptions to every rule. Some lenders, and loan programs, allow you to finance more than 28% of your take home pay, however, you will likely pay a premium in interest rate expenses and/or closing costs.  The most important part is that you set a budget with your lender, Realtor, and/or home builder, and stick to it!  You may not be able to afford your country club dream home today, but with careful planning, and saving, you will move closer to your goals every month!  Don’t like math, and/or have no clue about your debt load?  No worries, I’ve got plenty of professionals (including me) eager to help you understand every aspect of the home buying process!

Your neighborhood specialist at NextHome Central Real Estate

Robert Gideon