In an ideal world of low housing prices, combined with low mortgage interest rates, it can be simpler to determine how much house you can afford. Today’s real estate market that presents skyrocketing housing prices, however, means that the interest rate you pay is extremely important for a number of reasons. 

In general, the interest rate you secure will affect the total cost over the lifetime of the mortgage. A mortgage with a fixed interest rate locks in the amount you’ll pay in interest for borrowing the money. However, opting for this type of mortgage could wind up costing more at the beginning of the home buying process. 

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Building up equity in your home could provide you with flexible financial options in the future. A home equity loan or home equity line of credit (HELOC) is a possibility after you’ve built up at least 20 percent equity. You also typically need to have good credit and a steady, variable source of income in order to qualify. 

Advantages of a HELOC

A HELOC works in some ways like a credit card. There is a set amount that you can spend against it, and you’ll need to make monthly payments on the balance. 

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Whether people think about it in these terms or not, entering the real estate market as a buyer means you’re making an investment. In general, people think of inflation as being something that is negative and to be avoided. When inflation is approached in the context of being a homeowner, however, its presence could provide them with some positives that might not be obvious at first. 

Real Estate as an Inflationary Hedge

In times of rising inflation, rents nearly always increase. Similarly, wages also increase, as well as the costs of labor and building materials. This makes building new homes less attractive. 

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The real estate market, like much of the world, has undergone significant changes over a short period of time. With home prices increasing and a continued shortage of houses for sale, bidding wars are a common situation. 

With all these uncertainties and challenges do you know if you can really afford to purchase a home right now? Here are a few things to keep in mind as you mull over this decision. 

1. Consider the total cost of homeownership

Owning a home cost more than just a monthly mortgage payment. There’s also property taxes, HOA fees, homeowner’s insurance, regular maintenance, utilities and private mortgage insurance (PMI). While some of these costs — homeowner’s insurance and property taxes, for example — could be rolled into your loan, keep in mind that doing so still leaves items such as utilities and maintenance that will need to be budgeted for. 

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For many people, the sale price of a particular home is the number that is most important to them. While knowing the cost of a house is crucial during the entire process of home buying in order to stay within budget, it is only one aspect that needs to be considered. 

Knowing the interest rate — and shopping around for the best one — is another valuable factor. In fact, a home that offers a selling price that seems affordable could quickly balloon in cost so much that it is no longer within budget. 

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