How much home can you afford in Sacramento? Here’s how to budget
You know the type of house you want, and the neighborhood you want to live in. Perhaps it’s a stately Tudor in Curtis Park. Or a crisp new build in Roseville. The question is: Can you afford it? The process of figuring that out is complex. Here are some steps to start your home-shopping venture on the right foot.
Get pre-approved for a loan
Before you look at a home, get pre-approved for a loan. That could be with a mortgage broker, or a bank or credit union loan officer, or an online mortgage company. If you are in contact with a real estate agent, the agent may recommend a broker. This is the moment you will learn exactly where you stand financially, says Nathan Sibbet of LoanDepot in Sacramento.
Finding that bottom line
To get pre-approved, you will show your lender your income statements, your debts (such as student loans, car loans, credit cards), your savings, and your credit score. Sibbet says all these go into calculating what loan you qualify for, how much you can pay per month, and what home price you can handle.
Doug Ross of Pacific Wholesale Mortgage says his favorite clients come to him with a monthly housing budget already in mind. They’ve looked at what they pay in rent, what their other monthly expenses are, and came up with an amount they think they can afford.
How much is that for a median-priced Sacramento home?
According to California Association of Realtors’ estimates, in order to buy a $545,000 home in Sacramento, a person should be earning $108,000 a year. That person would pay about $2,700 a month for the mortgage, property taxes, home insurance and utilities. That assumes the person made a 20% down payment (That’s $109,000). It also assumes the buyer is tapping just 30% of their monthly income for housing. But, frankly, in California and Sacramento, many buyers spend 40% or more.
Extend yourself, but not too far
It may make sense to squeeze into the biggest mortgage you can afford, if your job is solid and you expect to earn bigger paychecks over time. But there’s risk, warns Rick Sharga, a real estate industry analyst for ATTOM Data Solutions. You’ll want money set aside as a cushion for unexpected expenses — and to keep your head above water if your income drops. “Giving that house key back to the lender can be one of the most devastating things a person can go through,” Sharga said.
Shop around for your mortgage
You’ll likely be looking at several houses before you buy. Similarly, you should shop around for a mortgage among different brokers, banks, credit unions and online sites. Ask their representatives what you can do to get a lower interest rate. Ask if there are down-payment and loan-assistance programs that might work for you. If you get pre-approved for a loan by a lender, you have not made a formal commitment to that lender. You are still free to choose another lender instead.
It’s your call
Agents and brokers likely will show you the biggest loan and house you can afford. It’s your task to determine if that feels like too much of a push. “It is up to the customer on what they feel comfortable with, regardless of what we tell them,” broker Sibbet says. Keep in mind, if this is your first house, you may live here for only a handful of years. Your “forever” home may still be ahead of you.