How Much Home Can You Afford??
Posted on December 23, 2021
Have you decided to buy a house but don’t know how to determine the right budget for you? In this video, I’m going to walk you through how to determine a price range that you’re comfortable with. We’ll look at everything from taxes to mortgage insurance so you know exactly what to expect.
Your Monthly Mortgage Payment
Buying a house is exciting, but it’s also emotional. Sometimes, emotional decisions lead to bad decisions. This is why it’s so important that, before you spend the time looking at houses and driving around town, you determine a price range that you’re comfortable with.
Knowing and breaking down the cost associated with homeownership every month is important. This information will let you make the best decision on how much you can afford for a mortgage payment. My advice is to work the numbers backward and come up with a monthly payment you can commit to. Just because a mortgage guy or gal said you could spend $500,000 doesn’t mean you should spend $500,000.
The largest monthly housing payment that you’ll have is the one that you make to the bank: your mortgage payment. Your mortgage payment will be a fixed amount based on the loan amount you’ve taken. A portion of this gets applied to the principal and the other portion gets applied to interest.
Property Taxes And HOAs
The next monthly expense of homeownership is your property taxes. Once you own a home, you also own a tax bill. To figure out your monthly tax bill, you’ll take the total annual taxes that you have to pay and divide that by 12. That will be the amount each month that you’ll pay with your mortgage.
If you put more than 20% down, you still want to account for what your monthly taxes are going to be in your budget. This is because, when you do put 20% down, you don’t necessarily have to pay your taxes with the mortgage payment.
Another expense you may have would be monthly homeowners association dues. This is only an expense if you’re purchasing a property in an HOA area. HOA dues are used for common areas expenses such as landscaping, pools, insurance, etc. You typically get an HOA when you buy a condo or a home in a special community with a lot of amenities.
The next expense is a very important cost that you will more than likely incur. It’s what’s known as private mortgage insurance, or PMI. This is a monthly payment that’s charged in addition to your mortgage payment and is applied when you put less than 20% down.
The cost of PMI is different depending on the loan program, loan amount, and your credit score. If you have any questions about PMI, feel free to reach out to me and I’ll be happy to walk you through it.
Choosing A House Within Your Budget
I hope this helped you understand the importance of your housing budget before you start shopping. All of these costs will make up your monthly housing obligation. Before you start looking for a house and getting excited about it, you want to consider all areas that fit your budget. The last thing you want to do is fall in love with a property that you can’t buy—simply because you didn’t take the time to understand what the taxes or homeowners’ association dues would be.
If you have any questions about the home buying process, make sure to reach out to me at 903-331- 0892 and I’ll be glad to connect. Don’t forget to subscribe to my channel so you never miss an episode of my show, all about real estate. Stay tuned to see what I feature next!