Knowing how much house you can afford isn’t as straight-forward as you may think. You can rely on the amount the mortgage loan lender is willing to lend. You can punch some numbers into a mortgage calculator and trust the answer you receive. Keep in mind that the bank might be loaning you more than you can afford to repay. The mortgage calculator can miss important things that impact your budget, but it’s not a bad place to begin your research. There are other factors to consider as you move forward.
How Much Can You Pay Monthly?
Instead of placing your focus on the price of the home or the amount the lender is willing to loan, figure out how much you can afford to spend each month on a mortgage. Experts advise that a mortgage payment should be 25 – 30 percent of your income. However, you know which percentage fits best when you consider other aspects of your lifestyle. You may find that 30 percent is more than you’re willing to devote each month to a mortgage payment.
Make a list of your current monthly expenses. Adjust amounts based on changes that will come with a new home. If it’s larger than the home you have right now, the heating and cooling costs need adjustments. Figure in the increase in the cost of living, savings, taxes, and unexpected expenses.
Strive for Balance with Your Down Payment
After you’ve created a budget that allows you to determine how much you are willing to pay each month on a mortgage, it’s time to consider the down payment amount. You need substantial savings that will cover the down payment, closing costs, and moving expenses.
Most loans expect a down payment of around 20 percent of the purchase price of the property. If that amount seems out of reach, you may still have buying options. If your down payment is on the low end, expect to have a higher interest rate and obtain private mortgage insurance.
What is Private Mortgage Insurance?
Lender use private mortgage insurance (PMI) as protection when dealing with a borrower who is considered a risk. The smaller your down payment, the larger your PMI cost. Some lenders expect you to pay the PMI for the life of the loan, but others will allow you to cancel it after you’ve paid a certain amount.
Get Answers about Insurance
Don’t settle for vague answers when you’re asking about homeowner’s insurance. The agent may have trouble giving you a fixed amount because of the variables involved, but get as much information as you can to help with your calculations. Family and friends are excellent resources if they don’t mind sharing what they pay for insurance. Check with your real estate agent and as for a referral to an insurance agent. You’re more likely to get straight answers if the insurance agent knows you are serious about buying a home.
Put the Details Together
Look for a mortgage calculator that allows you to enter your target purchase price, the term of the loan, interest rate, PMI cost, taxes, and insurance. Adjust the purchase price until you find the monthly mortgage that fits your budget.
Your real estate agent is the best source of information about the local community and real estate topics. Give the Robert Hussey Group a call today at 256-604-9750 to learn more about local areas, discuss selling a house, or tour available homes for sale.