Buying a home is one of the biggest purchases you make in your entire life. It usually requires in-depth planning and budgeting in order to maintain the right house in your right budget.
However, it’s still challenging to determine what is affordable for you. There are a few strategies that homeowners can use to determine their price limits for any property. Any of these will work for any buyer on the market:
The 25% rule
Most people recommend a traditional guideline where your mortgage shouldn’t be more than 25% of your monthly income. Some experts, such as the Federal Housing Administration, suggest closer to 31% of your monthly income, but 25% is a safer goal if you have to account for debt, student loans or other financial obligations.
Look at total expenses (not just the price tag)
While establishing your budget, you need to consider more than just your mortgage payment. You will need to account for insurance, utilities, homeowners’ association, maintenance costs and unexpected repairs. All these aspects will factor in your monthly payments, so make sure you have enough income to cover all costs, not just your mortgage.
Examine the down payment
Most sellers expect a down payment of 20% of the selling price, but it’s up to the lenders’ discretion of what they ask. If you cannot afford the down payment comfortably, you may want to re-address your budget limits or look into a different property.
These will help you establish the right budget for your current budget, but it doesn’t guarantee that you will always be able to afford your mortgage. There are always unpredictable circumstances that affect your ability to manage your finances. Make sure to know your options when it comes to saving your home.