How Much Home Can You Afford?

Buying a home is a big step, especially in the dynamic Portland metro area. Whether you’re a first-time homebuyer or simply curious about your buying power, understanding how much home you can afford is crucial. Let’s break it down into manageable steps.

Step 1: Determine Your Budget
The first step in figuring out how much home you can afford is understanding your budget. This involves assessing your income, monthly expenses, and financial goals.

• Income: Calculate your total household income, including salary, bonuses, and any additional income streams.
• Debt-to-Income Ratio (DTI): Your total monthly debt payments (including your new mortgage) shouldn’t exceed X% of your gross monthly income. Every loan has different requirements, so I recommend using a DTI ratio of 40% for your budgeting purposes.
• Monthly Expenses: Factor in utilities, groceries, transportation, and any other recurring expenses.
• What Are You Comfortable Spending? Your lender will do a deep-dive analysis of your financials to determine your DTI and what you can afford. But remember this number is your max, you can always choose to buy a cheaper home if you’re uncomfortable making that mortgage payment. Only you can decide what your budget is.

Step 2: Save for a Down Payment
In Portland, you’ll typically need a down payment of 3-20% of the home’s purchase price. Here are some examples for the same $400,000 home.

• 3% Down: You’d need $12,000.
• 5% Down: You’d need $20,000.
• 10% Down: You’d need $40,000.
• 20% Down: You’d need $80,000.

Keep in mind, that putting down less than 20% often requires mortgage insurance (PMI), which increases your monthly payment. However, on average homes appreciate 5% per year in the Portland Metro area. So if you have 5% to put down, it will almost always make more sense to buy the home now and refinance or recast your loan later. In the first 5 years, you could have about $110,000 in equity.

If you wait and save another $60,000 until you have a 20% downpayment on a $400,000 home- because of appreciation, that home you originally wanted is now $510,000. Now, $400,000 will buy you a smaller home or you’d have to move farther away to maintain the size.

Tip: Explore first-time homebuyer programs in Oregon, which may offer down payment assistance or low down payment options. There are also 0% down payment programs frequently used around the Portland Metro area including VA and USDA loans.

Step 3: Factor in Additional Costs
Owning a home comes with extra expenses beyond the mortgage payment. Here’s what to budget for:

• Property Taxes: Rates in Portland average around 1-1.25% of the home’s value annually.
• Homeowners Insurance: This can range from $500 to $1,500 per year depending on coverage.
• HOA Fees: If your home is in a community with a homeowner’s association.
• Maintenance and Repairs: A general rule of thumb is to set aside 1-3% of the home’s value annually for upkeep. Keep in mind that maintenance is cheaper than repairs so don’t forget to service your HVAC, clean your gutters, check your window seals, and all the other easily forgettable home maintenance items!

Step 4: Get Pre-Approved for a Mortgage
Getting pre-approved by a lender helps you understand how much they’re willing to lend based on your financial situation. This step also gives you an edge when making offers because it shows you’re a legitimate buyer. Documents You’ll Need:

• Recent pay stubs
• Tax returns for the past two years
• Bank statements
• Proof of other assets

Next Steps
Whether you just started thinking about buying a home or whether you’re ready to start the process, give me a call! Understanding how much home you can afford is the first step toward finding your dream home. Ready to start your homeowner journey? Let’s start with a consultation. Coffee is on me!

Alia Mahuna-Cantu
Licensed Real Estate Broker
Windermere West, LLC
1341 NE Orenco Station Parkway
Hillsboro, OR 97124
Direct: (503) 680-3770
www.aliamahuna.com