As you begin your search for your next home, there has probably been a recurring question popping up in your mind: How much can I afford? A lot of us think the price tag listed for the house is all there is to buying a house, but there a number of things to consider, such as mortgage rates and your lifestyle. Buying a house solely based on your wants or likes could end you up in financial hot water. Here are some tips to consider when determining home affordability in Anchorage, Alaska:
1. Your Income
One factor that determines home affordability is your gross annual income. Obviously, the more money you earn, the more you can afford. To get a general idea of how much you can afford when buying a house, you can multiple your income by 2.5. For example, if you make about $70,000 annually before taxes, you can typically afford a home around the $175,000 price range. However, you should note this calculation doesn’t include other expenses like mortgage rates.
2. Your Debt-to-Income Ratio
If a large portion of your paycheck is needed to pay down other debts, you will have less money left over for a house. Most experts recommend that your debt-to-income ratio should be no higher than 30 to 40 percent of your gross monthly income. By having an allotted portion of your budget dedicated to the house while leaving extra money for expenses, it keeps you from defaulting on your home loan (at least in theory).
3. Your Housing Ratio
No matter how much money you make, it is not wise to put your entire paycheck towards your housing expenses. Most experts recommend that you spend around 30 percent of your income on housing costs at most. This includes not only your mortgage, but also your interest, insurance, and taxes. Divide your annual income by twelve and multiply by .30 to figure out how large of a monthly payment you can afford.
Buying a Home in Anchorage, AK
When buying a home, you should also factor in your lifestyle. Do you tend to buy the latest in tech gadgets, such as new Apple products? Do you routinely change cars? Other debt can impact your ability to afford a home. Before you begin searching for a home, we suggest you talk with a lender and get pre-approved for a loan. That way, you know which price range of homes you should be looking at.