Breaking Down the Smart Way to Buy Your First HomeBuying your first home can be an exciting experience, but it can also be overwhelming and stressful if it’s not done correctly. Before you start browsing real estate listings and attending open houses, it’s essential to understand the smartest way to buy your first home. It involves understanding your finances, determining your affordable house value, making a down payment, and saving for closing expenses.
Determining Your Affordable House Value with the 25% RuleBefore you start looking for a house, it’s essential to know how much you can afford. The rule of thumb is to spend no more than 25% of your gross monthly income on your mortgage payment. To determine your affordable house value with the 25% rule, follow these steps:
- Calculate your gross monthly income by adding up all your income sources before taxes.
- Multiply your gross monthly income by 0.25 to get your maximum monthly mortgage payment.
- Deduct your monthly expenses, including debts like car payments and student loans, from your maximum monthly mortgage payment to get your affordable monthly mortgage payment.
- Multiply your affordable monthly mortgage payment by the number of months in your mortgage term to get your maximum affordable house value.