Mortgage Payment Strategies
Before taking the big plunge into home ownership, you need to take some time to determine exactly how much you can afford to pay on a mortgage each month. Once you've pinpointed your ideal mortgage range, you need to carefully evaluate which financial institution can provide the mortgage with the terms and rates that work best for you. The following tips will help with both these challenges as you start taking the steps of becoming a homeowner.
Determining the Payment You Can Afford
Start by doing some research. Pick up some home guides and look at the real estate ads in your Sunday newspaper for houses you would consider buying. Look at the asking prices for several of these homes, and then multiply by 80% for an estimate of the mortgage debt you would have for these homes. (Note: This estimate assumes a 20% down payment.) If you anticipate making a larger or smaller down payment, adjust your percentage accordingly.
Either using an online mortgage calculator or some personal finance software, calculate what the monthly mortgage payment for these houses would be. Then, add the amount you would have to pay each month for property taxes, home insurance, and private mortgage insurance.
Next, add in your monthly utility bills. If you are renting and don't have any, check with friends and family for an estimated amount.
After that, add in your monthly home maintenance budget. A good rule of thumb to use to determine this amount is to take 1% of the cost of the house as an annual amount, then divide that sum by 12 for the monthly maintenance cost.
Add in how much you expect to pay each month for furnishings, landscaping, and any nonessential home improvements.
Factor in any other monthly expenses you may have, such as payments for a credit card, a car, or a personal loan.
After you've added all this up, you'll have an estimate of your monthly cost. To determine if this amount will be a figure you'll be able to manage, multiply your monthly income by 40%, which is considered a common measure to use for this type of calculation, and compare the result to your estimated monthly costs. If your monthly income estimate is greater than or equal to your monthly estimated cost figures, then the house you have your eye on might be in your price range.
Other factors may add to your need for pet insurance. If your current insurance provider offers pet insurance, discuss your options with them to see if this type of coverage is a good idea for you.
