What happens when you are selling and looking to purchase a home simultaneously? The answer: is a little more complicated than you think.
Choosing the right mortgage for your needs is a crucial step in the homebuying process. In this article, we will cover a few tips on how you can find the perfect fit.
In This Article:
- What Tips Are There To Determine How Much Mortgage You Can Afford?
- Are There Questions I Should Be Asking To Figure Out How Much Of A Mortgage I Need?
- Why Is It Important To Buy Less House Than I Can Afford?
- What Are The Benefits To Staying Under Budget?
Before taking out a mortgage to buy a home, it’s time to take a realistic survey of your finances so that you can determine your price range and what size of home you can comfortably afford.
Buying a home that suits your finances will mean that your mortgage payments will be easily within your budget and won’t cause you financial stress.
Stay In Your Price Range
Many people, when offered a large mortgage by the bank, are tempted to buy homes that are outside of their price range. It is easy to see why a larger property or a more luxurious home might be appealing, but by stretching too far beyond your means, you are courting disaster.
If your monthly mortgage rate just barely fits within your budget, without room for savings, retirement contributions, or to build up an emergency fund – it will only be a matter of time before things start to get tight. Moreover, if you are unable to meet your mortgage payments, it is easy to slip very quickly into debt or even bankruptcy. This is why it is so crucial to buy a home that fits your budget.
How Much Mortgage Can You Afford?
When determining how much mortgage you can afford, you will need to factor in items such as your household income, monthly debt, and how much of a down payment you can afford. Moreover, you will also need to think ahead and plan for unexpected events and expenses. So how can you come up with a reasonable and affordable budget? Well, there are actually a few things you can do.
For starters, it is highly recommended that you stockpile your savings enough for at least three months’ worth of bills on hand.
You should also consider the following tips and suggestions in order to figure out how much you can afford and to safeguard against unexpected expenses.
Try using the 28/36 rule – your estimated monthly housing costs should be less than 30 percent of your monthly gross income.
Determine your down payment budget and start saving – This will help make your mortgage more affordable, especially if you can come up with the standard 20 percent down.
Decide if you are going to tap into another source of income or account – Withdrawing from your retirement plan or account to have a down payment on your home is not necessarily the best move. Still, if it is a viable option, then you may want to consider it.
Calculate an affordable home purchase price – you can figure out your max purchase price by adding your down payment and the amount of money you’re borrowing. Note, this is just an estimation, so if you need to modify that number, by all means, modify it.
Know your local housing market – it also pays to know your market. If the homes in your particular market look like they are going for well above your max price, then it is time to reconsider the area.
Here Are Some Questions To Ask Yourself For Figuring Out How Much Mortgage You Can Comfortably Afford:
- Make a detailed budget that chronicles your monthly incomings and outgoings. How much money do you really have each month to work with?
- What type of safety net do you have if something goes wrong in terms of savings and family support?
- How large of a down payment are you able to save up? At least 20 percent of the property cost is recommended, but more is always better.
- How much outstanding debt do you have from your other lenders, such as your credit card debts, your bank loans, student loans, etc.?
- How stable is your income? Do you have a steady paycheck, or are you self-employed with variable income?
- Are you willing to change your lifestyle and lead a more frugal life to get the house you want? Is there anywhere you can cut expenses and spend more on your mortgage payment?
- What will be the total of all of the costs associated with purchasing the home, including closing costs, inspections, and other fees?
- What are the costs associated with moving? Don’t forget to include the moving van, new appliances, hotel expenses, gas, and meals out during the transition period.
Why Buy Less House Than I Can Afford?
Once you have a better idea of what you can afford and you can secure financing for a home. You should also aim to buy less house than you can afford for several reasons. Besides not knowing what the future holds, buying under budget will give you some breathing room. As a result, your housing costs will not be a significant source of stress, and you can splurge on the little things every now and again.
Along those same lines, if you have a growing family or want to switch your job in the future, then you will need some funds that you can access while still being able to maintain your housing costs and mortgage payments. Thus, you should make sure any house you buy affords you some level of financial flexibility. Ultimately, your home should be an asset, not an obstacle to your progress.
The Benefits To Staying Under Budget
Furthermore, staying under budget means you can leave yourself more money for savings and investments. Savings and investments should be a line-item in your household budget, even when planning to buy a house. Owning a home and paying down the mortgage is one type of investment. Still, in order to have any level of financial independence, you will need to be able to make financial investments—staying under budget can help you do that. Other benefits to be mindful of include being able to withstand a financial crisis better and giving yourself room to pay off your mortgage early.
At the end of the day, once you have asked yourself the above-mentioned questions and taken a close look at your budget, you will be able to determine realistically what you can afford when buying a home and how much house you should purchase – so that you can find that dream home that meets your budget. For more helpful advice, contact a trusted mortgage professional.
Need Mortgage Assistance or Have Questions?
If you need the assistance of a seasoned mortgage professional, Sammamish Mortgage can help. We are a local, family-owned company based in Bellevue, Washington. We serve the entire state, as well as the broader Pacific Northwest region that includes Idaho, Colorado, and Oregon. We offer a wide variety of mortgage programs and products with flexible qualification criteria. Please contact us if you have mortgage-related questions.