Finding your new home in Phoenix is a fun experience — but it’s easy to get carried away with all of the excitement. If you’re a home buyer on a tight budget, buying the perfect house can be challenging. This is why it’s wise to understand your financial limitations before you begin your home search. Understanding how much you can afford before you start viewing homes will ensure you don’t get yourself into a financial pickle or set yourself up for disappointment. House prices vary greatly depending on the neighborhood and what your needs are. Knowing your budget makes finding an affordable house much easier.
If you’re looking for a new home and have been wondering how much you can afford, here are some tips for finding a home within your budget.
What Is Your Take-Home Income?
How much home you can afford will depend on your monthly take-home wage. You can avoid unnecessary costly mistakes by working out your budget before you start your search. Here are some e steps to help you estimate how much home you can afford.
Step 1: Calculate your monthly income.
What is your total monthly income? If you’re planning to purchase with your spouse, including their monthly income in your calculation also. For example, if you earn $2000 a month, and your spouse earns $3000, your combined total monthly income will be $5000.
Step 2: Calculate your maximum mortgage payment
It is advisable that your monthly home payment equal no more than 25% of your total monthly income. To calculate this, multiple your total monthly income by 0.25, or 25%. For example, using the example above, if your total monthly income is $5000, your monthly house payment should be no more than $1250.
Step 3: Get a more accurate estimate with an online mortgage calculator.
Online mortgage calculators will also calculate property taxes, HOA fees (if applicable), and Private Mortgage Insurance (if applicable). This will help you understand how much house you can afford.
How Much Down Payment Do You Need For a House?
Put simply, as a homebuyer in Phoenix, the larger down payment you can save, the better financial position you’ll be in. Not only does a greater down payment lower your mortgage payments, but it also means you can pay off your loan a lot faster.
Saving a down payment of at least 20% will help you avoid paying private mortgage insurance (PMI). PMI protects your lender in the event that they have to foreclose on your home in Phoenix. PMI typically equals around 1% of your total loan amount. This can increase your monthly payment substantially — especially if you’re on a tight budget.
How Much Are Home Buyer Closing Costs?
Closing costs typically cost anywhere from 3% to 6% of your home’s total sales price. Closing costs encompass costs relates to the sale, such as appraisal fees, title costs, HOA fees (if applicable), credit report, and home insurance. If you purchase a $200,000 home, expect to pay between $6000 and $12,000 in closing costs.
How Do You Start the Loan Process?
As stated above, as a home buyer you should fully understand your budget before you start searching for a home in Arizona. The first official step you should take in the loan process is getting prequalified from your lender. Prequalification is important because it tells you — and sellers — how much home you can afford. Prequalification also gives you a competitive advantage against other homebuyers — especially in a seller’s market. Loan prequalification shows the seller that you’re ready to purchase and have already started the loan process. Plus, getting prequalified can also save you time by getting your financial documents in order, to ensure a smooth closing.