The simplest way to establish if you are financially prepared to buy a home is to go through some calculations that will enable you to determine if you are ready to purchase, and what price range you should consider.
First, you must calculate your net worth – the amount you have left when you subtract your debts from your savings. This will help you determine the size of down payment you can afford.
Looking at your monthly expenses will tell you the monthly mortgage payments you can manage. Remember that you have to pay your principle, interest, taxes, and heat (P.I.T.H.). When added up, these should equal less than 32% of your monthly household income, while all your expenses should be less than 40%. By taking these things into consideration, you will get a good idea of what kind of home, down payment, and monthly mortgage payments you can afford.
