7 signs you can actually afford the home you want to buy

house sold signDavid McNew / Getty ImagesHere's how to be sure you can afford the house you want to buy.David McNew / Getty Images

If you've ever thought about buying a house, you likely already know how expensive it can be. And if that's the case, you've probably come to realize how much work it can be to get ready to buy. 

While housing prices have been on the rise, and trends in how buyers make down payments are changing, many looking to buy a home might feel that they're ready. 

A few top questions to ask are the classics: Can you make the 20% down payment? Is your debt-to-income ratio low enough? And while answering "yes" to these questions might get you approved for the mortgage, there are a few other questions to ask to make sure you're financially ready to make that house your home. 

Here are seven factors to consider to make sure you can truly afford the home you want to buy. 

Can you afford your dream home? Use this calculator to find out:

 

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1. You've looked past the purchase price

1. You've looked past the purchase price

Know how much you'll spend each month on utilities, and even things like trash removal? How about homeowner's insurance?

These expenses will be on top of the amount you pay for your mortgage each month, so make sure you factor them into your budget.

Be sure to look for homeowner's association fees as well. While not all neighborhoods have them, some do, and they could be costly. Realtor.com says that homeowner's association fees typically run about $200 to $300 per month.

2. You're not dipping into your emergency fund to make the down payment

2. You're not dipping into your emergency fund to make the down payment

If you're considering taking cash out of your emergency fund to make your down payment, you're probably not yet ready to buy.

On an episode of NPR's podcast "The Indicator," certified financial planner Jill Schlesinger discusses why it's a bad idea.

"When you decide you think you want to buy, you may be surprised to find out that it costs a lot of money to get into the place where you want to be. That may require you to put down all of your liquid assets into this house down payment and leave you what we like to call 'house poor,'" she says.

She stresses that keeping an emergency fund can help avoid making rash money decisions in the future, and help ease stress in the event of job loss, injury, or other life events.

3. You can make the full 20% down payment

3. You can make the full 20% down payment

A good indicator of home-buying readiness is whether or not you can make the full 20% down payment.

Putting down the full 20% can help you avoid having to pay for private mortgage insurance, an insurance policy generally added to the monthly mortgage payment (if you put down less than 20%) that protects a lender if a borrower stops paying on the loan.

Private mortgage insurance will cost somewhere between 0.3% and 1.2% of the balance on your loan, according to insurance broker Policygenius. For example, private mortgage insurance on a loan balance of $250,000 could add up to $3,000 extra to your total cost. But this isn't necessary if you have the full 20% up front.

4. You're not spending more than 30% of your income on housing

4. You're not spending more than 30% of your income on housing

Is the total amount of those bills, fees, and your mortgage payment still under 30% of your monthly pre-tax income? If so, you're probably in good shape to buy.

Keeping your housing expenses under 30% will allow you to contribute 10% to your 401(k) and save for retirement.

While many Americans spend about 37% of their income on housing, it might limit your lifestyle down the road.

5. You'll still have cash after that down payment.

5. You'll still have cash after that down payment.

Your down payment certainly won't be the only money you'll be spending on your new home. And if you'll still have plenty left for hidden costs, buying furniture, and other costs that come up during closing, you're probably in good shape to buy.

Having some extra cash for these expenses can help you save on potential financing costs in the long run. Putting new furniture or appliances on a credit card can be rather costly, but having the cash on hand can help you avoid that extra expense.

6. You won't be drowning in student loan debt.

6. You won't be drowning in student loan debt.

While there's no rule that you must pay off every cent of student loan debt before taking on a mortgage, you should consider the impacts of having two large debts.

On her podcast "Jill on Money," Jill Schlesinger suggests to a caller with over $100,000 of student loan debt that she make a dent in those loans before she considers homeownership.

"You are not buying a house right now," Schlesinger tells the caller. "It will feel like you are drowning."

And this goes for any other significant debts — make sure that your debts are under control before trying to take on another.

7. You don't have a high debt-to-income ratio

7. You don't have a high debt-to-income ratio

If your debt-to-income ratio is high, it might be harder to get approved for a mortgage. In fact, 43% is generally the highest ratio that can be approved for a mortgage. You can check this by adding up all of your monthly debt payments and dividing that by your monthly income.

Generally, 36% or lower is considered ideal for homeowners. So, if your ratio is much higher than you expected, there are two ways to go: either increase your income, or pay off some of your debt.

While it's possible that those with higher debt-to-income ratios can be approved, you might be looking at higher interest rates or lower approval odds, as lenders might consider you a higher-risk borrower.

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