How Much Mortgage Can I Afford?
A Guide to Estimating Your Mortgage Amount
How much mortgage can I afford? It’s a common question whether you’re buying your first home or your tenth.
To determine how much house you can truly afford, it’s important to analyze your finances carefully. You’ll need to look at your debt, savings, and income now and think about how they’ll change in the future. You’ll need to think about not only your mortgage premium, but also other homeowners’ expenses like property tax, private mortgage insurance, and more.
Once you’ve assessed your finances, you can see how a mortgage payment will impact your budget. When you’re ready to learn more, contact Associates Home Loan of Florida, Inc. We offer free quotes and are happy to help you find the answer to the question “How much mortgage can I afford?” We serve clients in Tampa Bay and nearby FL.
Take Account of Your Financial Status
The first step in determining how much house you can afford is to list out your current sources of income, your debt, your savings, and your monthly financial obligations. These include:
- Your debts, including credit card debts, college loans, and car loans
- Other monthly obligations like your car and health insurance, cable and cell phone bills and grocery bills
- Discretionary spending for recreational activities, eating out at restaurants, any vacation budget
- Your savings, including any savings accounts and investments
- Your total monthly income
In addition to carefully writing out your current budget, you should think about how your income and obligations might change in the future. Of course, you can’t fully predict what will happen, but you can plan for some expenses. If you have a child who is going to college in the next few years, for example, you’ll need to think of that expense. If you have an older family member who may need to live in assisted living, you’ll need to consider that as well.
Mortgage as a Percentage of Your Income
Once you’ve written down all your finances, you’ll know what your debt-to-income (DTI) is. DTI is the percentage of your gross monthly income that goes toward paying your debts. To get approved for most conventional financing, your DTI should be no higher than 43%.
You may wonder what percentage of your income you should contribute to your mortgage payments. It’s important to remember that there is no fixed rule, but there are some basic benchmarks. We recommend that the monthly mortgage premium should not exceed 28% of a borrower’s pre-tax monthly income. The full monthly housing costs, including the mortgage premium, monthly mortgage insurance, should be less than 32% of pre-tax income.
Up-Front Costs When Buying a Home
It’s important to remember that while you’re preparing for your monthly mortgage payment and other homeowners’ expenses, you’ll also need to raise the funds for a down payment and closing costs. These costs vary, but you can expect to pay 2-5% in closing costs. Down payments vary quite a bit – some nonconventional loans like VA loans have no required down payment, while conventional loans usually have a 20% down payment requirement.
Buying a home is a huge step and having help from qualified professionals can make a world of difference. If you’re just starting the process, our mortgage professionals are here to help you evaluate your finances and find answers to the question, “How much mortgage can I afford?” We work with clients in Tampa Bay and nearby Florida communities. Contact Associates Home Loan of Florida, Inc., today to learn how we can help!
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