No home-buyer wants to get in way over their head with monthly payments on a mortgage. You shouldn’t have to sacrifice your whole paycheck just to pay off your house each month. That’s why it is so important to know your means and plan a budget around those means, so that you’re not scraping together payments every month.
There are steps that you, as a home-buyer, can take to figure out exactly what you’re comfortable paying. Here’s how to have an informative conversation with your realtor about your budget.
The Golden Rules for Home Buyers
First off, keep in mind these golden rules for homebuyers before even planning your budget:
Max Mortgage Rule: your monthly mortgage should NOT be more than 28% of your gross monthly income—your income before taxes
Max Total Housing Payment Rule: your total housing payments—including mortgage, homeowner’s insurance, PMI (private mortgage insurance), association fees, and property taxes—should NOT be over 32% of your gross monthly income
Max Debt Payments Rule: your total debt payments—housing, auto loan, student loan, credit card payments—should not be over 40% of your gross monthly income
Basically, if you have larger payments in other areas, you should plan on not being able to afford as much in mortgage payments. Plus, sometimes banks won’t even approve a mortgage until other loans are either reduced or even paid off completely.
Now into the nitty gritty of home buying/budget planning!
First, ask yourself these questions:
- What do I want to spend?
- What am I comfortable spending?
- What can I afford to spend?
If you can answer these questions, then you have a good starting point. After you have done that, you can use your personal answers to these questions to talk it over with your realtor in order to find a balance between the home that you want and the amount that you’re capable of spending on your new home.
How Do I Answer These Questions?
You can thoroughly answer the above questions by going through these simple steps. Here’s what you really need to know:
- Your income
- Your household expenses
- Your home-ownership costs
It is also important to be open to adjustments. There is always the chance that other expenses may pop up and being caught by surprise when this happens could cause some serious problems down the road. The best thing that you can do for yourself is try to anticipate the future and to give your budget at least a little room to change.
Now, you can hop onto the home-search wagon! Don’t forget, negotiating is always an option, so if your dream home seems a little out of reach, see what you and your realtor can do to get the price down and stay within the lines of your budget.
Finding your dream home without breaking the bank really is attainable!