Your home may be the single biggest investment you make in your lifetime. Many people start the process by asking the question “How much do I qualify for?” This is not the right question to ask. You need to be asking yourself “How much can I afford?”
You should not let a real estate agent or lender determine your price range. Only you can determine a monthly payment that is compatible with your budget and lifestyle. If you have significant out-of-pocket prescription drug costs, enjoy dining out regularly, or pay for a child to attend private school, you may prefer to buy a less expensive home.
Don’t even think about buying a home until you have made a budget that tracks your monthly income and expenses. Live on this budget for several months to truly understand what you can afford in terms of a monthly mortgage payment. If you have trouble making ends meet while paying rent, you should create a game plan to free up money in your budget by changing your lifestyle, paying down debt or looking for a home that will cost you less in mortgage payments than your current rent.