When you are preparing to buy a home, it is important to figure out how much you can comfortably afford. Overextending yourself financially to get a home makes it more likely that you will not be able to keep up with monthly mortgage payments. Luckily, there are a few rules you can follow to help determine how much you can afford when buying a home. Although these rules are a bit financially conservative, they will decrease the chances of you going into foreclosure and make it much easier for you to afford your home.
The Twenty-Five Percent Rule
The simplest rule is that your monthly payments should not be more than 25% of your monthly income. It is also advisable to keep your entire debt load down to around 25% of your income in order to be comfortable and reach your other savings and retirement goals. If you have other debts to pay off – such as a car note or student loans – then you may even want to lower your mortgage payment to around 20% of your income. Banks may lend you more money thant you can actually afford, so it is important that you determine what is right for you.
Make a Budget Before You Start Shopping
Before you even start shopping for a new home, make a budget that covers all the costs that come with a home: your house payment, home insurance, taxes, and housing repairs. You’ll need to set aside money each month for possible future home remodels or repairs. That money will come in handy when, for example, you have plumbing issues or your air conditioning goes out. In addition to your house payment, you need to leave room for other costs.
What if I want a Nicer Home?
If you’re not satisfied with the type of home you can afford right now, there are a few things you can do. One is that you can simply save for a larger down payment until the amount you need to borrow is closer to an acceptable amount. This may mean waiting a few years, but it can make a difference in how much you’ll have to pay towards your mortgage. You could also buy a starter home or condo and live for five years in this type of home. It takes about five years to break even on purchasing a home and with the current volatility in the housing market, you may see your home value go up, hold steady or even go down. Another option would be to buy an older home that you can renovate. Often you can get a fixer-upper for less money, but you need to be prepared to deal with the hassles and additional expenses of renovations.
Other Things to Consider
In addition to the down payment, you will need to have money set aside for the closing costs. Your realtor should be able to tell you the estimated amount of the closing costs, but saving at least $5,000 is advisable. You’ll also need to plan for the costs of moving. Additionally, you should be careful when checking on the type of mortgage you choose. You should choose a fixed rate mortgage, and not an adjustable rate mortgage. Setting up an emergency fund is also important. You never know when you might have an unexpected emergency and need that money to make your mortgage payment.
Only you can decide when you’re ready to buy a home. When you are ready, Stonebridge Mortgage Group is here to help you through the process.
You can rely on Stonebridge Mortgage Group to help guide you through the home buying process. We help get you pre-approved for a mortgage and help with your real estate loans and other mortgage solutions, both residential and commercial. We serve the greater Portland area and are in Gresham, Oregon. Don’t wait to get quality assistance with buying your home!