Do You Know What Your Monthly Housing Budget Is?
When qualifying buyers, instead of focusing on “How much home can you afford” think about "how much of your monthly budget are you comfortable spending on housing?" The answers to both these questions is seldom the same.
The Monthly payment is a less abstract concept to the buyer than a homes purchase price. It breaks down the numbers into something that the buyer can easily focus on and understand. That monthly amount which hopefully will be equal to their monthly mortgage, will have to be paid out every single month no matter what else is going on in their lives. It becomes their monthly housing budget and will determine for them if the home of their dreams is actually affordable.
So, the first step in determining the affordability of a home is to know your monthly budget.
Next, you need to know what the annual real estate taxes for the property you're hoping to call home are, and the annual cost of insurance for that home. If you divide the sum of these figures by 12 you'll get the monthly cost you need to budget for taxes and insurance.
Then, when you subtract this sum (real estate taxes + home Insurance) from your monthly budget amount you’re left with the maximum monthly mortgage payment that you can carry.
With a mortgage calculator, if you enter this maximum payment amount, the term of your loan (whether 15, 25 or. 30 years) and the interest rate for which you qualify (e.g. 3.78%) it will return to you the amount of loan that you can afford and still stay within your budget. Remember though that interest rates, which fluctuate regularly, can greatly effect your housing budget and that with every 1 percent rise in mortgage rates, a buyer’s maximum purchase price falls about 10%.
Once you have this number, only you the buyer can determine for yourself whether this maximum monthly mortgage payment is affordable for you. Will this make you house rich but otherwise poor? Will it mean that you'll have to give up such pleasures as eating out and vacations? You'll have to decide just how much you are willing to give up for the privilege of owning a home.
Too many buyers, especially first time home buyers forget to factor into their monthly budget the extra ongoing costs of home ownership like home maintenance, landscaping, snow removal, etc. Though they dream of owning a home they are not willing to forgo those vacations and nights out to offset the extra carrying costs of home ownership which can add up very quickly.
So if you're planning on becoming a homeowner anytime soon, think about your total monthly obligations before leaping into the mortgage pool! Homes have never been more affordable and interest rates have never been more favorable so if your ready to take the plunge and are considering living in Rockland County NY - give me a call Leah Stern at 914-772-4528 and I can help navigate you through the process and find that perfect affordable home for you.
Flickr photo by Nikcname