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Choosing a Home Buying Price Point Isn't So Simple

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If you read advice online, you may hear of certain wisdom such as to buy property that's 2.5 times (or even 5 times) your current salary. But it often can't be boiled down to a simple multiplier. Here are some factors that could increase or decrease the amount that it's safe to spend on your first home.

Having a Lot of Career Mobility

The first thing that can change the amount you spend (and skew it towards a higher price) is knowing that you or your partner has a lot of upward mobility within their company or career track. It helps to speak with your boss about where you are headed in your position. If the road looks clear for some hefty promotions or raises within the next several years, you might be able to be less cautious about how much you spend on your mortgage.

Having a Big Down Payment

The traditional multipliers for home buyers are based on standard conditions that many home buyers start with. This includes putting down a 20% downpayment. However, if you can afford to put down a higher down payment, then it opens many more doors for you. For every dollar that you pay upfront, that's less money that you have to take out in loans and less money that's collecting interest over the years. Thus, you can look at higher value properties.

Having an Itch to Remodel

One thing that can put the brakes on buying an expensive home is if you already have specific remodel plans. If you need a special feature, such as a basketball court or a jacuzzi, you might want to shave some money off of the upfront home price.

Having a Lot of Other Debts or Future Expenses

Another thing that can bring down the amount you should spend is if you have a lot of outside debt or future expenses (such as private school or university bills coming up). If you need to split your income between many hefty bills, it's great to be more conservative about your mortgage.

As you can see, the decision on how much to spend for a mortgage can quickly get complicated. There are some ways that you can control the amount of spending with professional advice. For one, see how much a lender is willing to approve you for on a mortgage. Also approach a real estate agent to learn about the pricing that's typical in your area. If your real estate agent knows what amount you're approved for on your mortgage, they can help you find a variety of properties that come in around (or well below) your target dollar amount.