Can I Afford My Mortgage?
Having the money to buy a home for yourself or your family can feel like a dream come true. Once it all starts to come together, you can easily forget asking yourself the most important question: “how do I know if I can afford my mortgage?”
The harsh truth is, it doesn’t matter if you have a fancy backyard or a beautiful kitchen. If you aren’t able to pay your home’s monthly mortgage, your dream house will soon become a nightmare! But figuring out the amount of mortgage you can afford isn’t necessarily rocket science.
Here are some tips that can help.
The Price You Can Afford
All you need to do is crunch a few numbers.
Scared of math? Don’t worry!
Let us walk you through the process.
- Step 1: Add Up the Monthly Income of Your House
Add your income to your spouse’s income. Let’s assume you bring $4,500, and your spouse brings in $5,500 a month. This gives you a total of $10,000 a month.
Step 2: Multiply the Number By 25%
The maximum mortgage payment you can afford should not be more than a quarter of your income. So if you’re bringing in $10,000 every month, your mortgage payment can’t be more than $2,500.
- Step 3: Ownership Costs
Your emergency fund can indeed save you from disasters, but since you’ve got a home for the first time, you’ll have to incorporate additional expenses into your monthly budget.
These secondary costs can be:
· New appliances
· Frequent additions and repairs
· Increased need for utilities
· Routine services (HVAC repairs, pest control)
Maximize The Down Payment
The down payment you’ll be able to afford will make a huge impact. The more money you pay upfront, the less you’ll have to finance. This will ultimately mean you’ll have to pay a smaller mortgage payment every month and you’ll be to pay it off quicker, too!
Imagine living in a home with zero payments! And yes, any real estate agent would advise you to live in a home you bought from cash but saving and waiting until you can afford to buy one won’t give you a reasonable timeline.
Therefore, try to save for a down payment that is at least 10% of your home’s valuation. This way, you won’t have to pay for Private Mortgage Insurance (PMI). A PMI saves the mortgage company incase you aren’t able to make the payment. PMI is 1% of the total value of the loan and is yet another fee that is a part of the monthly payment.
Buying a house can be a decision that can be confusing for most people. As mind-boggling as the decision might seem, ensuring you have there sources to follow through on your plans is essential. If you’re still confused about the question “how do I afford my mortgage?” go over the information mentioned above again to clear your confusion.