
February 8, 2024
Who we are
Susie Chow is Tomo’s lead writer based in Atlanta, Georgia. We present our first Tomo’s Guide to Home Buying, broken into five sections, as a tool for all homeowners. Susie is also a contributing writer for Eater Atlanta, and has written for global brands, Shangri-La Hotels & Resorts, Airbnb, Uber, and many more.
In This Section
- Understanding Affordability
- The Benefits of Buying a Home
- Things to Consider with Home Ownership
- Organizing Finances & Budget
- Mortgage Budget
- Down Payment Budget & Closing Costs
- Cash on Hand
Purchasing a home is a major financial undertaking that brings substantial rewards, however, it’s not necessarily the right decision for everyone. When first considering buying a house, there are many fundamental questions homebuyers must ask themselves such as, “can I afford a house”, and if so, “how much house can I afford”. In Part 1 of Tomo’s Guide to Home Buying, we’ll demystify the often complex and time consuming process of buying a home, providing you with the necessary insights to make a prudent and well-informed decision to determine how much house you can afford.
Understanding Affordability
When considering the question, “how much house can I afford”, it’s imperative to account for not only the ongoing monthly payments but also the initial expenditures. These expenses typically include the down payment, closing fees, relocation costs, and any anticipated renovations. While these expenses fluctuate, setting aside funds for the down payment and closing costs is essential.
How much house can you afford? Check out Tomo’s Affordability Calculator.
The Benefits of Buying a Home
Generally speaking, real estate appreciates over time making it, more often than not, a wise investment; and with each monthly payment, you’re building equity in your property, rather than contributing to a landlord’s wealth. Homeownership also comes with potential tax incentives, including many tax deductions. Furthermore, the long-term financial stability and sense of security that come with owning a home make it a compelling choice for many individuals and families.
Things to Consider With Homeownership
Homeownership is a significant commitment, typically spanning 15 to 30 years. While selling your property is an option, it often takes time to realize any financial gains from the investment. Along with this commitment comes accountability, as homeowners are responsible for all repairs and maintenance of the property. This stands in contrast to renting, where such tasks and associated costs typically fall to the landlord.
Organizing Finances & Budget
As your financial landscape is the cornerstone of the home buying journey, it’s wise to familiarize yourself with your monthly expenditure, earnings, available funds, and credit rating.
Earnings: Determine both your gross and net income for a clear picture of what you earn each month. Gross income is your total income before taking out taxes, retirement savings, and health insurance costs. Net income is what you have left after these deductions, basically the amount that ends up in your bank account each month.
Expenses: Organize your expenses into fixed and fluctuating categories. Fixed expenses are like loan payments, student loans, and car payments. Fluctuating expenses are your day-to-day expenditure like groceries, travel to work, and entertainment. Remember to include any future expenses you know about that aren’t related to owning a home, like vacations, having a baby or going back to school; and don’t count expenses that you won’t have anymore like rent or related parking fees.
Mortgage Budget
One of the most important moments when beginning your home owning journey is assessing how a mortgage might fit into your budget. This is the critical juncture for grasping perhaps your most burning question, “what house can I afford”. Firstly, you can start by using a basic online mortgage calculator to determine if the payments are compatible with your post-expenses income. For more in depth and personalized assessment and guidance, it’s best to consult an experienced mortgage specialist to help you craft a feasible payment strategy.
Hint: We have some great mortgage experts here at Tomo.
Down Payment Budget & Closing Costs
When considering how much house you can afford, remember that qualifying for a mortgage is different from being able to afford a home. Most lenders require a 3-5% down payment, but remember, anything below 20% will need private mortgage insurance (PMI), a critical aspect of conventional loan requirements. If you can, aim for a 20% down payment to save on interest in the long run.
Cash on Hand
After your down payment, you’ll need cash for closing costs, usually around 2-5% of your loan amount. Closing costs include various fees such as legal, home inspection, property taxes, homeowner insurance, and more.
Buying a home is more than just meeting conventional loan requirements, it’s about firstly assessing your financial situation and determining, “can I afford a house” and “how much of a mortgage can I afford”. Use this guide to evaluate your readiness for homeownership, and remember, Tomo is here to guide you every step of the way.
How much house can you afford? Check out our Affordability Calculator.
What’s Next?
Part 2: Understanding Mortgage Pre-Approval
- How to get pre-approved for a home loan
- What is mortgage pre-approval
- Three main types of mortgage pre-approval
- If you’re pre-approved, will you get the loan?
- Mortgage pre-approvals—key takeaways
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