As consumer confidence rises and banks are loosening their mortgage requirements(although still not enough) many buyers who were on the sidelines are slowly coming out and putting their toe into the buyers pool. In fact, a recent survey from discovered that 65 % of those surveyed would rather purchase a home than pay rent if they had to move.
But with the bursting of the real estate bubble seared in our minds and millions of foreclosure filings later, we’ve witnessed how essential it's for buyers to be realistic about what housing affordability. So, before you decide to begin your real estate search, and contact a buyers agent the first thing you ought to do is look at your earnings. Add it all together and make sure you include not just your salary, but also any other consistent types of earnings, including year-end bonuses, rental income or alimony.
The rule of thumb is that no greater than 30% of your earnings should go towards your mortgage. It’s essential to set realistic expectations about what type of home you can afford. We even think 30% is too much, 22% to 25% is a little safer number.
You need to also think about the rest of your monthly costs, like college tuition, car-related debt, car insurance and any credit card debt that must be re-paid every month. Make sure you consider any expenses related to owning a home-such as homeowners insurance, real estate taxes, anticipated upkeep, and community charges or membership dues. Don’t overlook those enjoyable moments like dinners out, vacations and movie nights. You will be tempted to try to convince yourself you will just eliminate these fun things, but most people will put them on a credit card rather than do without. Do not allow your emotion to put you in a long term financial strain. I have been there. Being house poor is miserable. Here is a really comprehensive affordability calculator.
Also consider how long it will take you to find a new job in case you are downsized and if you can weather the storm. Assume it will take you one month of job searching for every $10,000 of annual earnings.