Show You’ve run the numbers to determine how much house you can truly afford. That’s great! But now comes the hard part: actually finding a home that fits into your budget. Here are some strategies to help stay on budget while searching for your next home. Buy A Starter House Instead Of A Forever HomeIn some cases, your budget might not be able to support your forever home dreams right now. And that’s OK! Instead of hunting in vain for a forever home that checks all of your boxes – including your budget – consider buying a starter home. A starter home may be a bit smaller, older and closer to an area’s urban center than your dream home. But choosing to move forward with a starter home means that you’ll get into a home sooner and start putting money toward owning a property each month. Once you, and your finances, are ready for your forever home, you’ll have plenty of options for your starter home. You could convert it into your first rental property to produce an income while upgrading your home. Or you could sell the starter home and funnel any proceeds into the equity of your next home. Pay Down Your DebtIf you want to increase the amount of house you can afford, then paying down your existing debts can make a big difference. Of course, paying down debt can be easier said than done. But with regular action, you might be surprised by the dent you can make. If possible, hold off applying for preapproval until you pay down the debts that are within reach. This strategy comes with three major benefits. First, you’ll have some of the debts holding back your finances cleared from the books. Second, a decrease in your monthly debts will lead to an increase in the percentage of your monthly income that can be allocated towards your mortgage payment. Finally, paying down debts will increase your overall financial health and potentially increase your credit score, making lenders more willing to approve your loan. Plus, you may even be able to unlock a better interest rate. A lower interest rate means that more of your mortgage payment can go towards your loan's principal, leading to a potentially larger loan amount. If you are interested in tackling this strategy head-on, then learn how to pay off debt fast. WaitWaiting to purchase a home might not be the ideal choice. But time can make all the difference. If you are willing to hold off on your home purchase, many things could change between now and then. For example, you might find a way to increase your income. That would allow you to qualify for a larger loan. Plus, the increased income would make saving for a larger down payment more feasible. Additionally, waiting can give you the time you need to pay off your debts. That could significantly impact the amount of home you can afford. This story is part of CNBC Make It's One-Minute Money Hacks series, which provides easy, straightforward tips and tricks to help you understand your finances and take control of your money. There's been a lot of discussion about affordable housing recently, especially as home prices and rents hit record levels. Is your current home affordable? Here's how to tell. The most common rule of thumb to determine how much you can afford to spend on housing is that it should be no more than 30% of your gross monthly income, which is your total income before taxes or other deductions are taken out. For renters, that 30% includes rent and utility costs like heat, water and electricity. If you own your home, you should include interest, homeowners insurance, property taxes and utilities, in addition to your mortgage. That means if you earn $75,000 a year before taxes, you should spend no more than $1,875 a month on your housing. The 30% rule is based on how much a family can reasonably spend on housing and still have enough money left over to afford everyday expenses like food and transportation. If you're looking to buy a home, some financial experts also recommend using the 28/36 rule to determine what you can afford. The 28/36 rule stipulates that in order for a home to be considered within your budget, your housing expenses (such as mortgage payments, taxes and insurance payments) shouldn't exceed 28% of your gross monthly income. Your total debt (including credit cards, student loans and car loan payments) shouldn't exceed 36% of your gross monthly income. If you're married or have a partner, keep in mind that this calculation includes the entire household, so you'll need to include their salary and debts in the equation as well. So, is your current home affordable? If it's not, it might be time to consider a cheaper place to rent or think about refinancing if you can. Sign up now: Get smarter about your money and career with our weekly newsletter More from this series:
What is the 36% rule?A Critical Number For Homebuyers
One way to decide how much of your income should go toward your mortgage is to use the 28/36 rule. According to this rule, your mortgage payment shouldn't be more than 28% of your monthly pre-tax income and 36% of your total debt. This is also known as the debt-to-income (DTI) ratio.
What percentage of income do most people spend on mortgage?The 28% Rule
Example: Let's say you earn $7,000 every month in gross household income. Multiply that by 28% and that's about what you can expect to spend on your monthly mortgage payment every month.
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What percent of household income should go to mortgage
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