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How to buy a home you can afford, in 9 steps

Kathleen Elkins: For most of us, buying a home is the biggest purchase of our lives — and the process is far from simple.

Here are nine steps to take to make sure the home you buy is one you can afford:

1. Check your credit score and look at your cash flow.

Start by checking your credit score. “The higher your score, the better the interest rate on your mortgage will be,” writes Ramit Sethi in “I Will Teach You To Be Rich.” Good credit can mean significantly lower monthly payments, so if your score is not great, consider delaying this big purchase until you’ve built up your credit.

As for monthly payments, personal finance experts say a good rule of thumb is to make sure make sure the total monthly payment doesn’t consume more than 30% of your take-home pay.

It’s also to your advantage to plan on being in this home for a while — at least 10 years, Sethi recommends. “The longer you stay in your house, the more you save,” he explains. “If you sell through a traditional realtor [estate agent], you pay that person a huge fee — usually 6% of the selling price. Divide that by just a few years, and it hits you a lot harder than if you had held the house for ten or twenty years.” Not to mention, moving costs can be insanely high.

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