The amount of mortgage that you are approved for by a lender and the amount of mortgage that you will actually be comfortable paying can be two very different amounts. How do you know how much you’ll be comfortable paying each month? Why are you approved for an amount that is much higher? What other factors should you keep in mind while budgeting for your new housing payment? Keep the tips below in mind while determining what your affordable mortgage payment is.
Budget for an Affordable Mortgage Payment
Before determining what mortgage payment you are comfortable with, consider what you want your lifestyle to look like in your new home. Sit down with a pen and paper and write out a realistic budget for your family. Understand what sacrifices you are willing to make. Perhaps you are a homebody, so you’ll be okay with a larger housing payment and spending less on entertainment and eating out. Perhaps you love to travel and want to be able to set aside money for vacation every month. Examine your current monthly housing payment and analyze whether you’d want to pay less, or could afford a little more.
Do not look at houses above your comfortable range
Most often a lender will tell you that you are approved for a higher amount of loan than what you are comfortable paying. The reason for that is they are calculating this amount off of your gross monthly income. They are not factoring in taxes, insurance costs, or childcare while underwriting your loan application. Although it may be tempting to look at homes up to the amount the bank has approved you for, try to only look at houses within your range of comfort. Once you see a home in the higher price range, it will be difficult to “settle” for a home with fewer upgrades in a lower price range. Be firm with your realtor and yourself and understand that you will either make a sacrifice on your home or financially.
Factor in miscellaneous costs
Although you may have an affordable mortgage payment you should also consider the other costs that are associated with owning a home. Will you be paying an additional homeowners association payment each month? How much will it cost to heat and cool the home? Is there a major appliance or repair that will need to be done on the house? Consider the upkeep and maintenance on the home in addition to what your mortgage payment is.
Consider any major life changes
Are you expecting a big lifestyle change to occur after purchasing your home. It is smart to think about what future changes life may bring to your current financial situation. If you are planning to return to school factor in the cost of tuition/books. If you want to start a family consider the loss of secondary income or the increase in childcare. Any considerable change in income will directly affect your ability to comfortably pay your mortgage every month.
Consider all of these factors before you buy a home. This will set you up for financial success and provide you with happy homeownership. It is better to think ahead about the different financial circumstances that may occur before you are obligated to a large loan. An affordable mortgage payment means something different to each family. Analyze what will make your family happy while providing financial stability.