If you spend any amount of time in a real estate office, it won’t be long before you hear one of the most universal questions asked: “How much home can I afford?” It doesn’t matter if the client is a first time buyer or a seasoned shopper, it’s a very common question… and for good reason.

The real estate market is always changing, and for all but the most dedicated, keeping track of all those changes is really a job for agents. After all, who else is keeping up with changing interest rates, common fees and expenses, rising and falling of both supply & demand, along with prices- just to name a few factors! While the buyer might know their income, they rely on other sources to help fill them in on other necessary information. You might be surprised at what you can actually afford!

So, what can you afford? You’re going to start by considering your monthly income and expenses, your credit availability, and your current savings. This can help you get a good idea of how much you can spend, in terms of a dollar amount. There are online calculators such a home affordability calculators and debt-to-income ratio, as well as a mortgage calculator, which can help you get a ballpark estimate of what you might be able to spend… but they don’t tell the whole story.

When searching for a home, you’re not just searching for a price point; you’re also searching for a home that meets your criteria. You need it to be a certain size, you need it to be in a certain area, and, ultimately, you need to spend within your means. Where does your agent come in? They can help fill in the blanks. For example, your mortgage isn’t going to be your only expense- you also have to consider insurance, utilities, HOA fees, property taxes, and maintenance. If you see the list price for a home, keep in mind that it doesn’t include closing costs or an inspection. For the uninitiated, you might be surprised just how much it can cost to purchase a home- without even taking into account the selling price for a home!

While your agent is going to be able to help you get a better understanding of what you need to budget for, you’ll really need to speak with your lender to get an even more detailed breakdown of expected expenses. Their process will help provide information that you can use to make an informed financial decision. In particular, interest rates affect affordability greatly. As the cost to borrow money rises, the amount of loan available to you can decrease… meaning you can’t afford as much home. Most conventional loan programs look at two things: the proposed mortgage amount and your total monthly debt obligations. The mortgage payment includes principal, interest, taxes and insurance and lenders expect this payment to be no more than 35% of your monthly gross income. The total debt each month should be no more than 45%. Total debt includes your mortgage payment plus monthly recurring debt such as credit card debt, car payments, student loans, etc. – anything that might be considered long term payments.

Rising property values can also mean increased taxes, again decreasing the amount you thought you could initially afford. As you can see, asking “What can I afford?” isn’t a straight forward answer! Before you start searching listings and attending open houses, it’s a good idea to understand what you’re getting yourself into, and just how much you can realistically afford. Owning your own home is one of the biggest financial decisions you’ll ever make, so do so with good information and confidence that you’re making the right decision! Keep the costs in mind: there’s more to buying a home than just the mortgage.