Buying your first home in North Carolina can feel like a daunting financial task, and that’s just considering the monthly mortgage payment. Much more goes into determining how much home you can afford, and understanding your affordability factors is key to ensuring you can enjoy your home for the long term without becoming house poor. Read on to learn about a few of the affordability factors you should consider to make the right financial decisions for you.
Consider Your Income
Before you decide how much you can pay for a home, you need to understand how much money you have coming in. Many first-time buyers make the mistake of buying a home based on what they expect to be making in a few years, not what they are making now. Raises and bonuses are not guaranteed, so it’s important to think in terms of your actual income, not projected. A good rule of thumb is that your housing costs should not be more than 30% of your income. That means if you make $3,000 per month, your total housing costs should not exceed $1,000.
How Does Your Debt Stack Up?
Taking on a mortgage is considered “good debt,” but it is still a loan. Before taking on such a large commitment, it’s important to make sure that your other debt isn’t out of control. Having debts means that you have to make regular payments that come out of your budget every month until the debt is paid. Having less debt to pay each month means that you will have more money in your pocket to afford a mortgage. A good idea is to subtract your debt payments from your income each month and use that number to determine how much mortgage you can afford. That way you won’t find yourself overstretched in a long-term mortgage that you can’t pay.
Don’t Forget About Your Home Owners’ Association
Many homes in North Carolina, whether in the urban areas or far out into the more rural parts of the state, come with home owners’ associations (HOAs). These organizations take care of certain things laid out in the bylaws when you purchase a home, and can include maintenance of outdoor and other common areas, signage and enforcing rules in the neighborhood. While they serve an important purpose, homeowners who buy a home in one of these HOAs have to pay dues to the organization. Before buying a home, it’s important to understand the HOA dues structure and get a good idea of what you will have to pay. Also, understand that HOA dues have the potential to increase every year the same as your property taxes and insurance. Include this figure in that “total housing costs” figure for the best results for affordability.
A Larger Down Payment Can Help
How much you pay for your home each month depends on the size of your mortgage loan. The most direct way to minimize the amount you owe on your mortgage is to purchase with a larger down payment. For example, if you purchase a home for $150,000 with a 5% down payment, you will pay $7,500 and your total mortgage amount will be $142,500. However, if you up your down payment to 10%, you will put down $15,000 up front but will only owe $135,000, which could cause a significant drop in your monthly payment. The NC Housing Finance Agency offers the NC Home Advantage Mortgage™ with up to 5% down payment assistance that can help give your down payment a boost. Learn more about this product and the NC 1st Home Advantage Down Payment at www.NCHomeAdvantage.com.
Get Educated with a Lender You Can Trust
The best way to learn what you need to know about affordability is to talk with your mortgage lender. A discussion with a trained, trusted lender, like one of the NC Housing Finance Agency’s participating lenders, can help you understand your financial situation and make the best choices for your fiscal future.
Learn more about all the ways the NC Housing Finance Agency can help make home happen for you at www.HousingBuildsNC.com. When you’re ready to buy, we’ll be here.