What Can You Afford?

Before you start looking at houses, you must first take a look at your finances. You will need to review your financial situation to determine what you will be able to pay down and how large a monthly payment you can handle. You'll also need this information when it's time to sit down with your lender.

If you don't have a net-worth statement already, it's time to put one together. This summary of your assets and liabilities will help you determine the maximum amount you can afford for a down payment. Some of your money may be tied up in non-liquid assets such as your current home, land, or collectibles. You must allow yourself plenty of time to access these funds by either selling or borrowing against them.

Use our Net Worth Worksheet to guide you through the calculations.

  • After calculating your net worth, you will need to subtract the following:
  • Savings for emergencies, educational expenses, or retirement;
  • Settlement and moving costs; (this may include closing costs as well)
  • Cash you'll need to improve, decorate, and furnish your new home (such as window coverings, etc)
  • Also, new construction homes may require a substantial amount of landscaping.

The bottom line will be the sum that you could put down on the new house, if you wished to use it all. The more cash you pay up front, the less you will have to pay month by month on the mortgage, and the lower your total interest costs will be.

Conversely, the less you put down, the greater will be your leverage, tax deductions for mortgage interest, and available funds for other expenses including decorating and furnishing. You'll also want to look at your spending habits to figure out how the new house payment will figure into your budget. If you don't have a budget already, we've included some handy worksheets to help you understand and gain control of your finances.

Payment Calculator

This mortgage calculator can be used to figure out monthly payments of a home mortgage loan, based on the home's sale price, the term of the loan desired, buyer's down payment percentage, and the loan's interest rate.

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