Whether you’re a first-time homebuyer, or thinking about upgraded to a more expansive house, you’ll need to be aware of how much you can afford to pay for a home. So here are 4 tips to help you determine how much you can comfortably pay every month for a mortgage.
#1 Prepare a Reasonable Monthly Budget
The first step in understanding how much of a monthly payment you can afford is to create an honest monthly budget which includes all of your family’s monthly income and expenses. Don’t forget to include money put in savings, and incidental expenses like vehicle maintenance and repairs, gifts, school supplies and fees, etc.
If you are thinking about having a higher monthly mortgage payment than you are currently paying now for rent or a mortgage, make sure you add that to your budget. Also, we suggest that you take the extra amount you’ll will be paying on your upcoming mortgage and set it aside every month for your down payment, so you get used to the extra expense every month.
#2 Estimate Your Down Payment
Although there are zero down payment mortgages, many people make a down payment on their home. And generally speaking, the higher down payment you can make the better.
The amount you invest in a down payment significantly affects your mortgage. Every dollar you can place in your down payment today is one less dollar you’ll need to borrow and pay interest on over the term of the mortgage.
Be careful not to over estimate your down payment on a new home, but also push yourself to put the most down that you can without hurting yourself financially.
#3 Consult a Mortgage Broker
When you get close to looking for a house, the first thing you want to do is contact a mortgage broker and pre-qualify for a mortgage.
By pre-qualifying for a mortgage, you know how much you can afford to pay for a home. So as a result, real estate agents and sellers take you more serious while you are searching for a home.
In a list of 9 steps to buying a home published by the U.S. Department of Housing and Urban Development, it’s suggested that you figure out how much you can afford and shop for a loan before looking for a house to buy.
And Jill Kransy, in Business Insider, emphasizes that serious homebuyers start with pre-qualifying for a mortgage:
For serious homebuyers, the pre-qualification process represents an important first-step prospective buyers tend to overlook.
#4 Stay Abreast of Changing Interest Rates
While looking for a home, stay abreast of changing interest rates. Small changes to your mortgage interest rate can significantly impact your monthly mortgage payment, so be aware of these fluctuations while looking for a home.
Here are some tools you can use to help track the impact of changes in interest rates and in your finances, as they relate to a monthly mortgage payment: