I Ran across this simple worksheet in a blog by Dan Green, Loan Officer with Waterstone Mortgage and author of the blog, The Mortgage Reports recently and found it to be useful in helping clients understand how much home they can afford.
If you can count on anything, you can count on housing payments. Month after month your payment is due...no matter what. Regardless of what other emergencies happen, know that you will need to make your monthly house payment come rain or shine.
It's important, then, to think of your house payment in terms of monthly obligations. What can you afford to spend on housing each month? As a home buyer it is the most important question you can ask yourself. You will have to manage all of your other hopes and expectations as a result of your answer.
Find your specific number, not a range. Once you calculate your monthly budget, evaluating if a home is affordable for you is a matter of doing some very basic mortgage math. You'll need a mortgage calculator for this. You can find one on my website or try the one on bankrate.com.
First, sum the following three figures:
1. The home's annual real estate tax bill divided by 12,
2. The home's estimated annual cost to insure, divided by 12, (your insurence agent can help determine this number. If you don't have one, ask your Realtor for recommendations).
3. The home's monthly dues, if an association is present.
Next, subtract the total from your monthly budget amount and you're left with your maximum monthly mortgage payment.
Example: If your budget is $1,500 and the above sum is $400,
you have $1,100 left monthly to spend on your mortgage.
This next step is tricky.
Using your mortgage calculator, enter your maximum payment amount (e.g., $1,100), your loan's expected term (e.g., 30 years), and your expected interest rate (e.g., 4.750%).
Then, have the calculator solve for "loan size", add to that ﬁgure your expected downpayment amount, and -- voila -- you've found the maximum price you can pay for a given home while still remaining within your budget
Recall that nothing is stagnant however and you have to account for changes:
✓ Budget For Changes
A home will never be as cheap as when
you ﬁrst buy it. Over time, tax bills get
bigger and insurance costs rise. Therefore,
when you set your monthly budget, make
sure you give yourself some breathing
room. Your monthly housing payment will
likely be larger 5 short years from now.
✓ Keep Some Money In The Bank
It's okay to make a big downpayment, but
make sure you leave some money in the
bank. "Life happens" and there's no
substitute for cash-on-hand. Keep at least
6 months of reserves in cash, if possible,
for whatever emergencies arise
Sandi Davidson, Realtor®
Florida's Realty LLC
Ask me how to get multiple offers on your home in less than 5 Days!!