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How Much Home Can You Afford?

Be sure you factor in ALL the costs.

"We found a home we totally LOVE. But can we afford it?"

"Can we afford it?" is actually TWO questions:

  • "How much will it cost to get into the home?"
  • "How much will it cost to stay in the home?"

"How much will it cost to get into the house?"

The costs of purchasing a residence fall into three categories:

  • Down payment
  • Mortgage
  • Closing costs

(It's also smart to factor in moving costs, so that you can get a more complete picture of your expenses.)

Down payment

Ideally, lenders prefer that borrowers pay 20% of the home's price up front. But they also understand that 20% is a steep figure, especially for first-time homebuyers. That's why you'll see many flexible residential home mortgages that let you put down less. Keep in mind, though, that such programs require you to purchase private mortgage insurance (PMI) to protect the lender's financial interest.


Through an easy process called prequalification, you can quickly get a non-binding, "ballpark" idea of how much you may be able to borrow. Knowing this amount, you can narrow down your choices. As you get closer to an actual home purchase, you'll get a more accurate idea of your mortgage costs during the mortgage application process.

Closing costs

You'll pay several one-time fees and charges on the day you close on your home purchase. Closing costs for Massachusetts home mortgages may include:

  • Appraisal fees
  • Attorney fees
  • Credit reports
  • Title or tax services
  • Homeowner's insurance
  • Private mortgage insurance (PMI)
  • Escrow fees (fees associated with setting up an account to pay tax and insurance monthly with a mortgage. Required for any purchase with less than 20% down payment.)
  • Loan origination charges
  • Points (charges for "buying down" your interest rate)

As rule of thumb, closing costs can total between 3% and 5% of your total mortgage. To help you firm up your budget, your home mortgage specialist will give you a good faith estimate of your closing costs shortly after you apply formally.

NEXT: Prequalification vs. Pre-approval