When you’re trying to determine how much house you can afford, there are several factors to consider.

The first thing you’ll probably do is sit at the computer to find a mortgage calculator to determine how much a payment would be. That’s a great place to start. Find out how much a $500,000 home would cost per month for the typical 30 year note. You can change the terms on the loan to see how much it would cost in fewer years, too. Once you have a basic idea of how much a monthly payment would be, there are other considerations to make. It’s tempting to run the numbers then decide you can do it. But remember there are other things first time home owners need to plan for.

For one, how much will the utilities be in this house? Contact the real estate agent you are working through or the utility companies directly to ask the information.

Will the payment leave you room to save for repairs or other home emergencies? None of us think about a storm blowing a tree over onto our house because that’s what we have insurance for (another expense to consider, by the way). However, there are some things a homeowners insurance policy does not cover.

Are you saving for retirement? If so, will your house payment require that money to make your household’s ends meet? If so, decide if it is worth giving up your savings or not.

If you are looking for a magic formula to tell you whether you can afford this house or not, try using this theory: a monthly house payment (including utilities, taxes and insurance) should not exceed about 28 percent of your monthly income. Another formula to use is a debt to income ratio. Most banks require that your total monthly debt (including credit card payments, auto payments, expected house payments and expenses – everything) should not exceed 38 percent of your total monthly income. The lower that percentage is, the better your debt to income ratio is. And if you have a good credit score on top of that, you will probably be eligible for a nice break in interest rates!

If you want to buy a house but are not sure how much you can afford, use our mortgage calculator or compare interest rates to find additional savings. The important thing is to not give up on your dream of home ownership. If you can’t comfortably afford a $500,000 home, try one in a lower price range. You’ll get the benefits of home ownership plus will be able to maintain a comfortable life style.

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