How Much House Can You Afford?

Now that home prices seem to be coming down a bit in the US, and interest rates are staying fairly stable (although the Fed is making noises about inflation again), conditions would seem to be right for an improved US spring housing market. A locked in mortgage rate could look pretty attractive right now, and lower prices could be a real incentive.

In fact, a lot of folks get the "bug" to move in the spring, when weather takes a favourable turn and moving becomes less of a hassle. The spring is traditionally a "hot" real estate market.

I can tell you that my family has been looking again. We've all acquired a bunch of stuff at Christmas that we likely cannot find space for, and a bigger house starts to look really good when you are living in a lot of kid clutter! (If the state of my basement is any indication, most small families probably need about 15 to 20 % more space just for stuff with the addition of each new family member!)

With that in mind, I was thinking about how much house we could afford, and figured that others might be going through the same thinking process. Did you know that on this site we have a number of tools that you can use in your quest for the right house for the right budget? Check out our Mortgage Calculator, Amortization Calculator, and How Much House Calculator. These tools can really help in your decision-making process.

The other question, of course, is how much mortgage would you actually be approved for? If you have a good credit rating and minimal loans for other purposes, you can expect to be approved for a mortgage which is the equivalent of 4 to 5 times your annual gross salary. While this might seem like an excuse to buy a big home, you also may not want a debt burden that big. Keep in mind that sometimes, things happen. People can be suddenly fired. (That happened to me once.) Family members can get sick. (Another thing that our home has experienced. We were down to one income -- we didn't have any disability insurance at the time -- for a whole year.) Even if both spouses are working, you may opt for a home that can be carried by one of you, for the extra security and the extra cash.

In our case, we opted for a bit less house (with a basement that we can refinish -- if we ever get it organized) so that we'd have a bit more money in pocket for things that are important to us, like family vacations and two fully-paid cars. (We don't like to have a loan on a car because the car is constantly losing value. Paying interest on an "asset" that is constantly losing value is a no-win proposition.)

Definitely got the bug to buy? We've got a whole section of the site devoted to the art and science of buying a house. Read up; get prepared; then, get out to a few of those open houses.

And don't forget to be pre-approved for your mortgage! If you need a quote or two so that you can start to understand what you can expect from a lender, check out a few of the sponsors for this site. They'll be happy to help you.

The first day of spring is March 21st. Enjoy!

Michael Chantrel
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