When you want to buy a new home you want to get the best home that you can afford. But, while you may be pre-approved for a certain mortgage amount, that does not mean that you can necessarily afford that amount or even want to spend that amount. Just because you qualify for a large mortgage, it does not mean that you need to spend that maximum loan amount.
How Much Can You Afford?
The maximum loan amount for which you are approved is not necessarily a reflection of how much you can actually afford. When buying a home it is important to sit down and look at all of your expenses. We mean all your expenses. Your morning coffee run, your gym membership, your insurance, your hair cuts, your quick run through the drive-thru for lunch – everything. Really look at how much you spend in a month and consider whether or not you anticipate any new expenses arising anytime soon. Once you have accounted for your current expenses and anticipated expenses, it is time to add a little cushion room for saving money and unexpected expenses. That total is how much you can actually afford to spend on a monthly mortgage payment.
How Much Do You Want to Spend
Now that you know how much you can afford it is time to consider how much you actually want to spend. The two numbers may be very similar or they may be very different. Do you like to take a lot of vacations, are you trying to save more money for retirement, do you want to be able to eat out more often or just have some extra spending money? If so, that will impact how much you actually want to spend. While some people are comfortable spending just how much they can afford and being diligent with their budget, other people like to have more room with their money each month. Now that you have considered how much you can afford and how much you actually want to spend, you can begin looking at homes in that price range.