How Much Home Can I Afford?

If you require a mortgage (a loan specific to purchase property), your price point, or the amount of home you can afford, depends on (1) the amount of mortgage you’re eligible for, and (2) the cash you have on hand for a downpayment and closing costs.

How much mortgage am I eligible for? This depends on your income, liquid assets, debt, and credit score. Getting vetted for a mortgage and receiving basic loan information is free. Connect with a seasoned lender early on; they’ll provide invaluable clarity on loan products and closing costs specific to your market. Closing costs are nonfinanceable costs associated with obtaining a mortgage, purchasing within your state, and hiring professionals to help you through your purchase. They can add up, so it’s important to have clarity before you begin shopping.

How much cash do I need? Understand how much of a downpayment you need. A downpayment is the amount of cash you contribute to the home’s purchase price. A common scenario is the bank provides 80% of the purchase price in the form of a mortgage, and you provide the remainder of the purchase price (20%) using your savings and/or liquid investments (plan to leave retirement and 401Ks out of the picture). So, for example, if a home costs $500,000, a common scenario is the bank provides $400,000, and you contribute $100,000 from your savings. This does not include closing costs!

Your real estate agent should help you understand how much of a downpayment is required for the types of homes you’re targeting. For example, most NYC co-ops require at least 20% downpayment, whereas there’s no minimum downpayment for house purchases.

Another guideline: it’s recommended you spend no more than 30% of your income on monthly housing costs, and some lenders (and even some apartment buildings) have strict rules about how much of your monthly income can go to debt.

Always reach out with questions! 😊