Before you start shopping for a new home, you’ll need to know exactly how much house you can afford. Otherwise, you could end up in a home that is way out of your budget. What you qualify for may not be what you can actually afford, based on your personal situation. Only you can decide how much you’re comfortable paying every month.
While you may be tempted to spend the full amount of mortgage you’re approved for, you should take your total expenses into consideration. When deciding how much to spend on a home, remember: your decision should be based on:
When you go to a bank or lender for a mortgage pre-approval, you’ll receive a quote for the maximum amount you can borrow. Banks and lenders use specific calculations – called mortgage ratios – to determine what you can afford based on your overall monthly debts, including housing costs. These ratios are:
Don’t feel pressured to spend the full mortgage amount you’ve been approved for. Once you’ve considered the above factors, you’ll have a better idea of how much money you should spend on a home.
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