Ever pass by a house for sale in a nice area and think to yourself, “Could I purchase a home like that?” Why not find out?! It only takes a few calculations to determine how much of a new home you qualify for. The following 3 factors can help determine just how much you can afford to spend on your next home:
1. How much your current home is worth.
Knowing your current home’s value in today's market allows you to evaluate what you can afford and give you a good picture of your overall financial health. It can also determine whether that listing you were eyeing is priced appropriately and decide how to price your own home. Use online appraisal tools and comparable properties to figure out your home’s value before budgeting to buy your next one.
2.The type of home you want for your next move.
Key features of your dream home like its square footage, location, number of bedrooms/bathrooms, style (ex: two-story vs. ranch) and the year it was built all factor in to establishing how much you’d have to fork over to make it yours. Do some research into how the market favours (or doesn’t!) the type of home you’re interested in.
3.Your liquid assets and liabilities​.
Of course, you should also take into consideration your income, liquid savings and other financial resources! Time to check in on those pre-authorized contributions to your ‘rainy-day savings’ account, see how much that car / boat /jewellery you don’t use may be worth, and take stock overall of your liquid assets. It may just surprise you how much your accumulated possessions are worth! On the flip side, any substantial debt accrued or a loan you haven’t paid out yet will also need to go in the books. You’ll want to get those cleared up before house-shopping.
Even if you are not presently thinking of selling your current home, you may be wondering how much you could afford to buy. Once it is all laid out, you should have a pretty good picture of how much you can spend and a price range to work with to help you confidently shop for that new home. Try this exercise out! It is worth finding out if you can afford to get into your dream neighbourhood and home now, or just need to set some goals to help get you there.
