How To Determine How Much We Can Afford
How do we determine how much we can pay for a home?
This is a very common question in Real Estate. Buyers generally determine what they want and need in a home, and then look to what they can afford. But it’s important you determine upfront what your budget is. That way you aren’t disappointed or let down as your search progresses.
Getting pre-approved upfront is the best way to ensure none of these negative situations happen. Additionally, if in your search for a home you find one you’re super excited about, you can jump on it and begin the process because you’re already pre-approved.
Typically perspective buyers go onto some kind of internet calculator. They input things such as what percent they plan to put down, the applicable taxes and so forth. But the number that comes out of this calculation may not factor in various important tax implications. For example, if you’re a first time buyer and don’t have a lot of tax write-offs, when you purchase a home that’s going to be a huge factor in your income changing. For example, let’s say your mortgage payment is $2,000 a month. When you first start, the interest payment, which comprises most of the payment, can be written off your income. So in your first year of home ownership, you can potentially write thousands of dollars off of your income as a result of mortgage payments.
With this “added” income you can either save it or use it for improvements on the property; or you can do an instant tax filing and effectively receive a bigger paycheck every month. As an example, if your paycheck was $3,000 a month, now with these tax write-offs your paycheck could become $3,400 or so a month instead. So even if your mortgage payment is $2,000 a month, it is effectively more like $1,600 because of the increase in your paycheck to offset it.
We always recommend you speak to a CPA or Tax Specialist, but write-offs like these are things a Mortgage Broker can help you with. We help people everyday get their properties sold and buy a new home. When you’re ready to buy or sell, reach out to us so we can help you accomplish your Real Estate goals.