Home Buying Budget

There is a big difference between mindlessly scrolling through Zillow and perusing what’s out there on the market and sitting down to figure out how much house you can really afford. Making the steps to actually save for a house and begin to search in earnest for your new home in CA are two very exciting checkpoints on the way to home ownership. Somewhere in between all of the saving, planning, and looking is the actual number-crunching that will tell you how much house you can actually afford in CA.

What often starts with casual musings, a glance at your bank statements, and maybe a casual conversation at the dinner table quickly changes to logistical and strategic thoughts about how to swing a mortgage payment in CA. After you’ve got a number in mind that’s feasible — then it’s time to decide if you can truly afford that monthly payment or not and still maintain a lifestyle you enjoy. 

Luckily, working with a great loan officer, like Sylvia Sanders Loan Officer / Loan Originator and figuring out what your interest rate could be is a great starting point. Once you have that, your loan officer and a dozen different calculators across Google can easily crunch the numbers for you. [company name] offers a great calculator if you’re just playing around with numbers before contacting a professional to get the process started. 

There are two main factors to consider when asking yourself how much house you can afford. One is how much monthly can you afford to pay towards a mortgage and the other is do you have the cash on hand (or coming) to fix what either needs to be fixed or you want to update. There’s not much worse than spending your hard-earned savings on a fixer-upper because it’s all you can qualify for and then not being able to make the improvements in a timely manner. 

EXAMPLE SCENARIO
While every home-buying situation is unique to the buyers, sellers, and the market — a few rules of thumb are good to follow. In general, most financially-savvy individuals advise to not spend more than 28% of your gross monthly income on home-related expenses. This includes your mortgage, insurance, utilities — everything. To make the math easier and for the sake of simplicity, take a yearly income of $100,000, whether between two people or individually is irrelevant in this case. With an annual income of $100,000, buyers should be aiming to spend no more than $2,300 a month on their mortgage or rent. Again, there are specific factors for every situation and that’s why it’s so important to discuss all of your options with your loan officer or mortgage broker. 

Perhaps unsurprisingly, many do not follow the 28% “rule” and spend much more of their income on their housing situation — hence the term house-rich and cash-poor. Especially in metropolitan or coastal areas, homes are incredibly and increasingly expensive and many spend around 40-50% of their monthly income on housing costs of some sorts. The solace one can take if you’re in this boat, or about to be, is that if you’re paying an astronomical amount towards your mortgage in comparison to your monthly income, at least you’re paying towards something for yourself and increasing the equity you have in your home instead of renting and paying someone else’s mortgage. 

The Bottom Line 

There’s a lot to consider when deciding how much house you can afford and how much house you’re willing to afford. Factors like lifestyle, location, future plans and goals all come into play when making large financial decisions and buying a house is probably the biggest financial decision of them all. Get in touch with Sylvia Sanders Loan Officer / Loan Originator – C2 Financial to review your options now.