Buying a new home is a big deal – especially if it’s your first home.
There are a number of factors to consider: Where will my life be in 10 years? Is this home going to be a starter home, or is it my forever home? If it is my forever home, how can I make sure I’ll be happy in this home in 15 years, when my life is – potentially – completely different?
For many first-time homebuyers, one question weighs heavily over the rest: what monthly mortgage payment can I afford?
In order to determine monthly payment, you must first determine how much you are able to spend for a down payment. The best way to keep your monthly payment as low as possible is by putting 20% of the purchase price down. However, there are other down payment options available, allowing you to put as little as 3.5% down. Your lender will be able to advise you as to which down payment option may be best for you.
All Lombardo homebuyers are required to be pre-approved by a qualified lender before signing a purchase agreement on a new home, which also helps to lower monthly mortgage payments. A trained lender will be able to find out exactly how much you’re realistically able to borrow, which will protect you from purchasing a home that is beyond your means.
To help new homebuyers understand what monthly mortgage payment they should target before speaking with a mortgage consultant, we recommend adhering to the following rules of thumb.
The 30% Rule
The 30% rule is a good start when thinking about what monthly mortgage payment you can afford. Under the 30% rule, your total monthly payment – including principal & interest, property taxes, closing costs, and homeowner’s insurance – should not exceed 30% of your gross monthly income.
For example, if you and a co-buyer make a combined $8,000 each month, your total monthly mortgage payment should not be more than $2,400. This rule is not fail-proof, though, and does not take into account other debts such as car payments, credit cards, student loans, etc.
The 43% Rule
That’s where the 43% rule comes into play. This helps account for all other debts and expenses so you have a figure that more accurately represents your financial situation.
To calculate the maximum mortgage payment you can afford on your Lombardo home, simply subtract your total monthly expenses from 43% of your total monthly income. If you’re unsure of how much your total monthly expenses are exactly, it’s ok to make an educated guess.
So for example, if your combined income is $8,000 each month, and have around $1,700 worth of expenses, the maximum monthly house payment you can reasonably afford is $1,740.
Do you have any financing tips for first-time homebuyers? Leave a comment and let us know!