Choose mortgage time and rate
Before you even start looking at houses you need to assess your financial situation and choose a mortgage option that you can afford. There are 3 things to consider here:
- First of all, always go for a fixed-rate mortgage loan. With any other sort of loan you’re at the mercy of the market, so if and when the rates go up, you may not be able to afford your mortgage anymore and you may lose your house many years into your mortgage.
- Mortgage term: while the most conventional mortgage term is 30 years, see if you have the financial resources to get a 15-year mortgage loan or even a shorter term. This way you can pay off your home twice and quickly and maybe even retire much sooner than expected.
- If you’re asking “how much mortgage can I get approved for?”, then you’re not going about this the right way. You should only think about the monthly mortgage payments you can afford. Your payments should never be more than 25 percent of what you make after taxes.
Calculate your house cost based on salary
To find out how much house you can afford first add up your monthly household income. For example, you and your significant other both work and bring home $5,000 every month. Take 25 percent of that sum – $1,250. This is how much you can spend on your mortgage and related expenses per month.
The next thing to consider is how much money you have for a downpayment. For example, you have $25,000 saved up just for this purpose.
If you choose a fixed-rate mortgage loan for 15 years and get approved for a 3.5% interest rate, factoring in your downpayment, setting aside 200 dollars from your $1,250 monthly budget for insurance and utilities, you can comfortably afford a $170,000 home to have a good house cost to income ratio.
Be aware of the cost of home ownership
Find out in advance if your new home is a part of a home ownership association. If it is, you might have to pay association fees every month or year. There are also property taxes, although they are usually included in the mortgage payment. Utility payments, home repairs, rainy day funds for plumbing emergencies, home improvements and more add up to a significant sum. You will also have to spend a significant sum on moving and furniture, so make sure you have some funds set aside.
Budgeting apps such as Cubux are a great way to keep track of your expenses, make sure you have enough money for all those miscellaneous expenses and help you save up for renovations and moving, so give us a try!
