Do You Really Know How Much You Should Spend On Your Mortgage?
Zenith
Zenith Greenwood Village, CO
Published on May 26, 2020

Do You Really Know How Much You Should Spend On Your Mortgage?

There is one question that all potential home buyers must ask themselves before they purchase a home – “How much should I spend on my mortgage?” This is not a simple question and there is no one simple or generic answer but, fortunately, there are some ways to guide you to your answer. When you get pre-approved for a mortgage, it can be very tempting to purchase a home at the maximum for which you have been approved. And, for some, that is perfectly fine. But, for many others, it could leave you house-poor. Even if you can manage to scrape it together each month and pay your mortgage, you may be left with no additional money for other bills, saving for retirement, investing in your children’s college expenses, leisure activities, dining out, vacations or other expenses.

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Consider All Expenses Involved with Homeownership

One of the most important things to remember when considering how much to spend is that, when you are a homeowner, the expenses do not stop with your mortgage. There are utilities, maintenance costs, and those dreaded surprises – your water heater stops working, there is a leak in the roof, your air conditioner gives out in the middle of summer, etc. And be certain that when you are calculating your mortgage payment you are including homeowners insurance and property taxes for the most accurate depiction of what your mortgage payment will be. It is important to be able to afford your mortgage and have additional money for savings and other expenses so that, if something comes up, you can afford it.

Calculating the Percentage of Your Net Income Your Mortgage Payment Should Be

To determine the appropriate amount to spend on your monthly mortgage payment, you must first look at your net income. How much do you bring home each month after all taxes, health insurance, etc. have been taken out of your paycheck? Most conservative recommendations are that you should not spend more than 25 – 28% of your net income on a mortgage. Other slightly less conservative recommendations say not to spend more than 30% of your net income on a mortgage. What is best for you will depend heavily on your lifestyle, goals, earning potential, existing debt, and other factors. It is important to note that, by law, lenders cannot approve you for a loan that will take up more than 35% of your monthly income. If you have large student loans that you hope to pay off, perhaps you want to keep your mortgage payments as low as possible so that you can pay student debt off more quickly. Perhaps you have no other debt and feel comfortable with your mortgage taking a slightly larger percentage of your net income. Once you have been pre-approved for a mortgage and you have considered how much you want to actually spend on mortgage payments each month, it will help guide your hunt for the perfect home!

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Zenith
Zenith Greenwood Village, CO
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