Can I Afford to Buy a Home?

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Buying a home is the biggest financial decision most people will make, with many factors going into that decision. In some markets, renting might be a better option, depending on your personal circumstances.

Your Income Taking on a mortgage is a long-term commitment. You should be confident that your income level will be stable for the foreseeable future, or at least three to five years, the minimum amount of time before it would likely make financial sense to sell or refinance.

Your Savings You will most likely be tapping your savings to make a down payment.

Keep in mind that mortgage lenders won’t want you to deplete your savings entirely – they will want you to have cash reserves to cover unexpected expenses. Reserve requirements vary, depending on the lender and type of loan, but figure at least two months’ worth of payments.

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Additional Costs In calculating how much of a monthly payment you can afford, don’t forget to figure in other homeownership costs, including homeowner’s insurance, property taxes and maintenance charges. If your rent currently covers your utilities, you’ll also have to estimate how much more a month you will have to pay for gas and electricity.

Your Timeline If you can’t be sure that you will be in the house for at least three to five years, you might want to continue renting. If you have to sell before then, the house probably won’t have appreciated enough to cover what you paid out in closing costs and other ownership expenses.

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