Ready to take the plunge into homeownership? Before you start your house hunt, it's important to know how much of your income you can allocate to your monthly mortgage budget. Here, we’ll discuss how to determine your mortgage budget, allocate your income, and what expenses to include.
Determining Your Mortgage Budget
The most important thing when deciding on a monthly mortgage budget is to be realistic about what you can afford. Most experts suggest that your total housing costs (mortgage, taxes, insurance) should not exceed 28% of your gross monthly income. This number is just an estimate and the amount you can really spend may vary. Depending on if you have other debts such as student loans or credit cards. It's a good idea to speak with a financial advisor who can help figure out the best monthly mortgage budget.
Allocating Your Income
Once you have a clearer picture of what percentage of your income should go towards housing costs, it's time to decide how much money will be allocated for each expense. Allow yourself wiggle room in case your housing costs rise over time - this would mean that one expense might use more than its allotted amount while another expense uses less. Generally speaking, around 18%-22% of income should go towards principal and interest payments; 3%-5% should go towards property taxes; 1%-3% should go towards homeowners insurance; and 0%-2% should go towards private mortgage insurance (PMI).
EXAMPLE: If your combined household income is $65,000 pre-tax, then at 30 percent, your mortgage budget is $1,950 per month.
Expenses To Include
When budgeting for home ownership, it’s important to consider more than just the principal-interest-taxes-insurance (PITI) payment typically associated with mortgages. These are some additional expenses that you may want to factor into your budget. When calculating how much house you can afford: utilities (heat/gas/electricity), maintenance fees, repairs/upgrades (such as painting or replacing appliances), lawn care services or gardening supplies, moving costs/furniture purchases, homeowner association fees (if applicable), cable/internet bills, etc. These expenses vary widely depending on where you live so it’s important to research these before making any decisions about purchasing a home.
Setting a realistic monthly mortgage budget is essential for anyone considering buying a home. By following these steps and doing research on local market conditions and trends in utility prices and other associated costs, potential homeowners can make an informed decision about their purchase without stretching themselves too thin financially! With the right information and guidance from professionals like financial advisors and real estate agents - homeownership can become a reality!