Buying a home is a major financial decision, and although you may certainly want to consider external factors like home prices and mortgage rates when deciding when to buy, it really comes down to your individual circumstances.
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Before purchasing a home, ask yourself these questions to determine if now is the best time for you.
1. Can You Afford To Buy a Home?
In addition to having a down payment ready to go, you also need to be realistic about how much you can put toward housing costs each month.
“Generally, the money you spend on a home should amount to no more than 28% of your income before taxes are taken out,” said Judy Dutton, executive editor at Realtor.com and editor of the “First-Time Homebuying 101” e-book. “So for instance, if your monthly income is $6,000, 28% of that is $1,680, which means this should be the most you spend every month on housing.”
2. Are Your Debts Under Control?
Buying a home typically means taking out a mortgage, so you want to make sure that adding another loan to your existing debts won’t put your financial security in jeopardy.
“The rule here is that all of your monthly debts — for a home, college loans, credit cards and otherwise — should amount to no more than 36% of your pre-tax income,” Dutton said. “If you make $6,000 per month, 36% of that is $2,160. If $500 per month of that goes towards credit cards or other debts, that leaves you with about $1,660 per month for a house.”
Dutton recommends using an online calculator, such as the Realtor.com home affordability calculator, to see how much you can afford to pay for housing given your other debt obligations.
“You can plug in your income and debts to get an instant estimate of how much you can spend on a home,” she said.
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