BY STEVEN GALLO, CFP®, FINANCIAL ADVISOR

You have your sights on that gorgeous house with the quintessential white picket fence. It is perfect in every sense. Before you dive into full-on HGTV mode, let’s address the big question: how much house can you really afford? It’s not solely about the mortgage payments; there’s a whole financial puzzle to piece together. Below is a step-by-step guide on how to crunch the numbers on your home buying budget like a pro.

Step 1: Dig Into Your Finances: Grab a pen and paper or a spreadsheet, if you’re feeling fancy. Write down your monthly income after taxes (the amount deposited in the bank on payday). This value is your starting point.

Step 2: Tally Up Existing Debt Payments: Time to face the music on the bills you’re currently juggling. Add up what you’re paying each month for things like credit cards, student loans and car loans. Those are the regulars in your expense crew.

Step 3: The Magic of the Down Payment: The down payment is the unicorn of real estate. It’s a mythical beast. Traditionally, it’s 20% of the purchase price, but let’s not box ourselves in. Peek at your savings and ask yourself, “How much can I comfortably put down?”

Step 4: Property Taxes and Insurance: Don’t forget Uncle Sam and the insurance folks. Estimate property taxes and homeowners’ insurance costs. Then add them to your monthly expense tally.

Step 5: Maintenance and Upkeep: Homes need TLC. Think repairs, maintenance and general wear and tear. A good ballpark is about 1-3% of the home’s value per year. Add this into your monthly expenses.

Step 6: The 30% Rule: Here’s a little rule of thumb. Add up your mortgage, property taxes, insurance and the home TLC fund from Step 5. Ideally, this total is less than 30% of your total income. If it’s exceeding, it’s time to rethink your budget.

Step 7: A Reality Check: Take a good look at your new budget. Does it leave room for emergencies, savings and a little of life’s luxuries? Your dream home shouldn’t leave your checking account a nightmare. 

Step 8: Pre-Approval Chat: Chat with a mortgage lender. They’ll do some fancy math – much fancier than this – and give you a pre-approval amount. This is like the golden ticket. It tells you what a bank thinks you can afford to purchase. 

Step 9: Make It Personal: Remember, this is YOUR budget. Just because the bank approves you for a certain amount doesn’t mean you have to go that high. No need to pursue the maximum.  Avoid the trap of being house-rich and cash-poor.

Final Thoughts: Buying a house is exciting, but it’s also a big financial commitment. Take your time with these calculations, and don’t rush into a decision. A home should enhance your life, not stress you out.

There you have it – a crash course in calculating home affordability. Whether you’re dreaming of a cozy cottage or a sprawling mansion, these steps will help you find the sweet spot between your dream home and your financial reality. 

Securities offered through LPL Financial. Member FINRA/SIPC. Marzano Capital Group is another business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance LLC, a registered investment advisor. Independent Advisor Alliance is a separate entity from LPL Financial.