How Much Income Do I Need to Buy A House?

How Much Income Do I Need to Buy A House?

Buying a house is a big deal, and the biggest questions revolve around budget. Before jumping into house-hunting, make you sure have the full picture of the income required for mortgage payments and other expenses

When asking yourself, “how much income do I need to buy a house,” make sure you review this checklist:

1. Consider the income required for mortgage payments and other monthly requirements

With homeownership comes other bills aside from monthly mortgage payments. Homeowners insurance, property taxes, utilities and other extra costs are regular bills that you should factor into your budget

Homesnap just updated our income calculator for mortgage for iOS, which makes it easier to calculate these estimates.

Just click on the “estimated mortgage” above the price on any listing to see the calculator. You can now enter info on property taxes, homeowners insurance, HOA/condo fees and mortgage insurance. You’ll get an accurate picture of what you’ll owe each month, in addition to the mortgage itself.

Make sure to take a look at several different options when it comes to your chosen mortgage: The duration of your loan makes a big difference in your monthly payments, and with 15- and 30-year loan options on the table, choosing carefully can make or break your ability to pay for your new home.

Talk to your chosen mortgage lender about the loan that’s best for you and your financial situation

2. Find a real estate agent

Trying to brave this process on your own would be a major home-buying misstep. Buying a house is probably the most significant financial decision you’ll ever make! An expert real estate agent will help you navigate the process.

They’ll also point you toward other experts, like inspectors and mortgage brokers. Having a great agent at your side during the home-buying process is more than just a nice-to-have: It’s the key to ensuring that finding your next home is as easy as possible.

When it comes to helping you do the home-buying math, agents are indispensable.

After all, they may not be financial planners, but they’ve been through this process enough times with enough different clients that they can help you determine what home (and what mortgage) is right for you. Agents will also guide you through the process of negotiation, helping you secure the price that works for you.

Not sure what to ask a realtor? No worries — we’ve got a list of helpful questions to ask when finding the right agent.

3. Forget what you’ve heard about the 20% down payment

The idea that you must have 20% in cash to buy a house is a myth. These days, most lenders will approve a loan even if you don’t have 20% down.

That said, you might be required to buy mortgage insurance if you put less than 20% down.

For most borrowers, the minimum amount for a down payment sits somewhere between 3% and 5% of the home’s value. Certain lenders, though, offer 100% financing, negating the need for a down payment altogether. These types of mortgages are usually offered by credit unions to their members, so be sure to research local and industry-specific credit unions in your area before choosing your lender.

And, of course, the more money you include in your down payment, the less income required for mortgage payments later on.

Mortgage, Hypothecary Credit, Loan

4. Make sure you know what financial assistance you’re eligible for

You’re not completely on your own when it comes to paying for your new home. Some state and local agencies provide grants for first-time home buyers, veterans, and low-income buyers.

These grants can be hugely beneficial when it comes to shopping for your new home, so be sure to do a healthy amount of research before you set your budget. After all, a grant could reduce the amount of money you need to set aside for a down payment, keeping some of that money free for future expenses.

If you’re buying a home for the first time, a good rule of thumb is to ask lots of questions at every turn: You don’t want to miss out on saving thousands of dollars because you didn’t do your due diligence when researching home financing assistance.

Certain programs, like HUD’s Good Neighbor Next Door Initiative, cater to public servants like law enforcement officers, firefighters, emergency medical technicians, and teachers, allowing them to reduce the purchase price of their next home by up to 50% if they’re willing to live in certain pre-approved neighborhoods.

5. Prepare for closing costs

Before you close on your new home, you’ll have to cough up some extra cash to pay for closing costs. Closing costs cover a huge variety of expenses, from home inspections to notary fees and everything in between. Closing costs vary from house to house and situation to situation, but when all is said and done, you can expect to pay between 2 and 5% of your new home’s list price in closing costs.

5% of your home’s value may sound like a lot to put towards something that isn’t a down payment, but closing costs are negotiable, so it’s imperative to talk to your agent during the negotiation process and see what they recommend.

If you’re buying in a more competitive market, you may be out of luck — but sellers in less competitive markets may be motivated to pay extra in closing costs, saving you a substantial amount of cash.

6. Factor in cash you may need after you buy

Any homeowner will tell you: Unexpected costs come up quickly. Make sure you have some cash on hand after you close, in case the roof suddenly springs a leak or you have a plumbing emergency. Part of homeownership is total responsibility, and it’s important to be ready for any unexpected costs that come up along the way.

It’s about more than just being ready to fix your home up, though: Having some money set aside for unexpected expenses will help you stay financially comfortable regardless of what’s going on at home.

Be sure that you’re adding to your emergency fund every month, but also make an effort to set aside some extra cash for any future renovations you may want to take on. Your home may be great as-is, but putting some money toward a future bonus room, new kitchen, or new roof will help ease your costs later on. Your home inspector will be able to give you helpful insights on what to anticipate in terms of necessary home remodels and repairs.