FDIC-Insured – Backed by the full faith and credit of the U.S. GovernmentHome Mortgage: Affordability vs. Comfortability
| Posted in Bank Blogs
There can be a big difference between the loan you can afford on paper versus the loan amount you're comfortable repaying.
Affordability
Affordability is a key component to consider when you begin searching for a home to purchase. It's wise to avoid getting in over your head financially and being stuck with a mortgage loan that's too expensive.
One of the best ways to determine how much house you can afford is to use an affordability calculator. This tool will take into account your gross monthly income, monthly debts, and other factors to give you a rough estimate of the price range you can afford.
Figuring out how much you can afford to spend on a home requires taking a close look at your finances. Start by calculating your gross monthly income. This is the total amount of money you earn each month, before taxes and other deductions.
Next, calculate your monthly debt obligations. This includes things like credit card payments, car loans, and student loans. Finally, subtract your monthly debt from your gross monthly income. The resulting number is how much you have left over each month to put towards a mortgage payment.
Another key factor to consider is your debt-to-income ratio. This is the percentage of your monthly income that goes towards paying off debts, including your mortgage. For example, if your monthly income is $3,000 and you have $300 in debt payments, your debt-to-income ratio would be 10%.
Ideally, you want to keep your debt-to-income ratio under 36%. This will leave you with enough wiggle room in your budget to cover other expenses and still make your mortgage payments. Mortgage calculators can help you zero on in a good percentage while including interest rate data and property tax considerations.
Once you know how much you can afford to spend each month, you can start shopping for a home. Keep in mind that you'll also need to factor in things like closing costs, property taxes, and homeowners insurance.
And don't forget to leave some room in your budget for unexpected expenses! If you're not sure what price range you can afford, it's always a good idea to speak with a financial advisor or a trusted mortgage lender. They can help you crunch the numbers and figure out a budget that works for you.
Comfortability
You may qualify for a VA loan, FHA loan or another special type of home loan. Your credit score may help you qualify for a higher total loan amount. The question is, how much are you comfortable repaying? The answer should leave you with an affordable mortgage.
Spending too much of your total income on your mortgage payment can be a risk. Being able to make your mortgage payment doesn't mean you're able to cover other necessary living expenses.
Owing more money on your home than what it is worth is not good for your financial health. And if you're underwater on your mortgage, that means you owe more than what the house is worth AND you're still paying interest on the loan. All of this can be incredibly stressful and put a strain on your finances.
Avoiding this type of problem starts with knowing how much house you can actually afford. It's important to take a close look at your finances and make sure you're not putting yourself in a difficult financial situation.
Taking out a loan that is too large for your budget can lead to all sorts of financial problems down the road. So be smart about your decision and only borrow what you know you can comfortably afford.
Here are a few things to keep in mind when considering how big of a loan you're comfortable taking out:
- What are your current finances like? Do you have a steady income and savings that you can tap into if needed? Or are you already struggling to make ends meet?
- How much can you comfortably afford to pay each month? Keep in mind that your monthly payment will likely be higher than just the amount of the loan itself, as you'll also have interest, mortgage insurance, and fees to factor in. The total home price is always higher than the amount listed on the real estate brochure.
- Are you comfortable with the idea of being in debt for an extended period of time? Buying a home and making monthly mortgage payments can be a decades-long proposition.
- What are your financial goals? If you're trying to get out of debt as quickly as possible, you'll want to keep your loan payments manageable so you can put extra money towards paying it off. On the other hand, if you're more focused on building your savings or investing for the future, you may be comfortable taking on a larger loan and using the money you save each month to reach your other financial goals.
No matter how big or small your loan is, make sure you carefully consider all of these factors before making a decision. And remember, it's always best to err on the side of caution when it comes to taking on debt.
When you're ready to start the mortgage process, contact one of our friendly mortgage lenders and visit www.premiercommunity.com/home-loans.html for more helpful information.