How Much Is Too Much Mortgage?

Buying a home can be a great and terrifying experience. There are many forms to sign and so much money involved. Very few people have the means to buy a home outright; most people pay off their home over a span of decades. It is the most expensive thing you probably will ever buy, and it can certainlybe intimidating to sign those papers. If you purchase a house with foresight and understanding of your own finances, however, you will feel much more comfortable with the process. So how do you get there? The answer is simple: preperation. Determine how much mortgage is right for you from the start, and you should have complete confidence when you close on your new home.

How much you can pay for a house is going to come down to these factors:

1) How much you make. Experts recommend that you put no more than 28% of your pretax income towards your mortgage, so make sure you are at or below that number. Be realistic here. Don’t factor in promotions or raises that you should be getting. Work with what you know you have.

2) Your credit situation. This will include information from your credit report, your credit score, and the outstanding debt you already carry.

3) How much you put down to start with. The down payment helps on two levels: it will lower the cost of what you have to borrow; and banks know that statistically, people who put more money into their house up front are more likely to pay their mortgage(or look for help if they cannot for any reason) than people who have nothing invested other than their names on some papers.

My first recommendation is toavoid the emotional trap of falling in love with a house, and then trying to figure out how to you’re going to pay for it–this can quickly get you in over your head. Start by knowing how much you’re able to borrow by prequalifying for a mortgage.  Shop around. Most people look at only one lender and take the first loan they’re given. Don’t do yourself that disservice. See if you qualify for a VA loan or an FHA loan. Find a bank who gives you a good rate and doesn’t sneak lots of fees onto your costs. Be sure that you understand how much you are borrowing and for how long. Look at how much the final amount will be. This can be difficult with an adjustable rate mortgage, so know what factors determine your rate and when—and how often—it will be reevaluated. If there is the potential for the loan to increase to an amount that ismore than you can pay, an adjustable rate mortgage is not right for you.

Once you know how much you are approved for, you will have a realistic idea of how much you will be paying every month to cover the loan.

Next, factor in things like property taxes, homeowner’s insurance, personal mortgage insurance (if you need it), maintenance, any debt you are already carrying, and  living expenses. There are calculators online that can help you guestimate these numbers, and most counties have property tax information available online. Once you know the total there, you’ll know where your money will be going each month.

Now you’re at the best part—once you know how much you can spend, start looking at homes. Since you’ll know in advance what you can afford, you’ll be able to focus on places within your price range, and will be sure to find something that you’ll really love.Good luck, and happy hunting!