How much home can you afford?
Buying “too much house” can quickly turn your home into a liability instead of an asset. That’s why it’s important to know what you can afford before you ever start looking at homes with your real estate agent.
Buying too much house can quickly turn your home into a liability instead of an asset.
We recommend keeping your monthly mortgage payment to 25% or less of your monthly take-home pay. For example, if you bring home $5,000 a month, your monthly mortgage payment should be no more than $1,250. Using our easy mortgage calculator, you’ll find that means you can afford a $211,000 home on a 15-year fixed-rate loan with a 20% down payment.
With a conservative monthly mortgage payment, you’ll have room in your budget to cover additional costs of homeownership, like repairs and maintenance, while saving for other financial goals, including retirement.
How is my mortgage payment determined?
Depending on your situation, there are typically three or four parts of your mortgage payment:
- Principal: Repayment of your outstanding balance.
- Interest: Payment of the interest charged on the outstanding balance.
- Taxes: See question 12. One-twelfth of your expected annual property taxes will be included in your mortgage payment, and deposited into your escrow account.
- Insurance: This includes homeowner’s insurance, as well as any other hazard insurances you’re required to have, such as flood or windstorm. If you put less than 20% down on your loan, this can also include private mortgage insurance.
Based on these four items, your mortgage payments are sometimes referred to as PITI.
Will my monthly payments change during the loan term?
Probably. Even with a fixed-rate loan, your payment is likely to change over time.
The reason? Your property taxes and insurance expenses, upon which the escrow portion of your payment is based, tend to fluctuate. If they rise, it may be necessary for your lender to ask for a higher escrow payment.
What does your mortgage payment include?
So what happens when you send in that mortgage payment every month? It’s nice to think the whole amount just reduces your principal, but your monthly payment actually goes toward a lot more.
Here’s what the typical monthly mortgage payment includes:
- Homeowners insurance
- Property taxes
- Private mortgage insurance (PMI), if you put down less than 20% on your home
What is an escrow account, and how does it work?
Your mortgage payment may include additional costs like your homeowner’s insurance and property taxes. These are annual expenses that are part of homeownership, and the lender is at risk if you don’t make those payments.
Your lender can add the monthly portion of each of those accounts to your mortgage payment. That money is held in an escrow account that is managed by a third party to make sure those costs are paid on time.
Most people are intimidated by the mortgage process. This section answer questions like:
- How to Qualify
- Credit Requirements
There are many different types and terms for loans. This section covers the most popular options.
- Fixed Rate or Adjustable?
- 15 Year or 30 Year?
- Mortgage Points
How much does the home buying process cost? This section covers information like:
- Down Payment
- Closing Costs
- How Much to Save
How much can you expect to pay on your mortgage? This section covers loan management.
- How Much Can I Afford?
- Mortgage Payments
- Do Payments Change?
How long does the whole process take? This page details answers to questions like:
- Average Timeline
- What happens At Closing
- Why It Takes Time
The best way to get started is to fill out a pre qualification form, that way we can help you 1 on 1 for your situation.