Buying a home can be an exciting time, and while looking for the perfect floor plan in the best neighborhood are the fun aspects of house hunting, the most important thing to look for in a home is whether you can afford it. Before you even begin house hunting, it is important to know what kind of monthly payments you can manage not just today, but in the future. Read on to learn some tips on how you can decide how much to spend on a mortgage, so you can enjoy owning your home instead of stressing about paying for it.
Find a Reasonable Price Range
It is important to remember that the amount that your lender says you can afford is not always the best one to rely on. Instead, you should take stock of what might be a reasonable price range for you. A good rule of thumb is to multiply your annual salary by 3 for a low number and by 4 for a high number. Between those two numbers is the sweet spot. Since it is advised that you should spend no more than 30 percent of your income on housing, using these numbers to guide you can help you find a home you can comfortably afford.
For example, if your household income is $50,000, your price range might be $150,000 to $200,000.
Don’t Rely on Projected Income
One of the biggest mistakes that home buyers make is buying a home that they assume they can financially grow into. Many buyers think that they can buy a home that may be more expensive now, but that future income hikes like promotions or job changes will make it more affordable in the future. While buying a home that you can grow into size-wise might be a good idea, financial growing pains are risky. Buy a home that you can afford now, so that if those promotions and windfalls never come, you don’t lose your home.
Don’t Forget About Additional Costs
When you are considering how much you can pay for a monthly mortgage, you should also include the additional costs that might come with your monthly payment, including property taxes, homeowner’s insurance, HOA fees and Private Mortgage Insurance. These costs may or may not be part of your overall monthly payment but should be considered as part of your mortgage cost.
Consider Your Future Goals
Your mortgage might be your largest monthly expense, but keep in mind that it isn’t your only expense and your goals may change in the future. Ensure that whatever you choose to spend on a mortgage leaves room for you to pay for things like vacations, education, car payments, medical expenses, debt and even emergency expenses. Spending too much of your income on your home puts you at risk of becoming house poor.
Talk to a Lander
The NC Housing Finance Agency has many resources to help you determine what you can afford to spend on a home, including educational materials and affordability calculators. Once you have decided what you are comfortable paying in a mortgage, it’s time to talk to a lender. The NC Housing Finance Agency works with a variety of preferred lenders statewide who are educated in Agency products and who can help you find a mortgage that you can afford. These lenders can help you determine eligibility for the Agency’s NC Home Advantage Mortgage as well as a Mortgage Credit Certificate that can reduce your federal income taxes. To learn more and find a lender, visit www.nchfa.com/home-buyers.
