Owning your home is a dream for many and when you finally start thinking about it, the rush can be imagined. So, if you are thinking about buying a house loan and own a house mortgage, you are simply ahead of your financial planning. It is always incredible to think of your hard work and dream finally paying off when you start to own your house. There are a thousand possibilities of arranging money for your house. In these situations, you can easily get caught up in excitement. But you got to ask yourself a very important question: How much house can I afford? In other terms, how much house mortgage can you afford? Arranging for a mortgage can be a task to look out for. It would not matter if the house is small or large, has 3 bedroom or 5 but if you can’t pay the mortgage on time, it will always be a liability on you. Therefore these questions become important.
But figuring about the house loan can be a daunting task as well though it is not a task you will have to sweat more about. Check out some of the tricks to calculate how much house mortgage you can afford.
Calculating the Costs
There are a few methods by the help of which you figure out about buying a home which would not be burden on you. In the following flowchart, you can follow the steps to determine about the affordability and then go over the results to determine about the amount of mortgage you can afford at any given day while also considering the bank rates. Here are the ways in which you can calculate the costs –
- You must add up income that comes into your house in every month. This would include the income of your wife as well. If your children have grown up and have started earning, you can ask them to contribute as well if they are willing. So, let’s say you earn $2,000 a month while your spouse makes $3,000 per month. Then, your final monthly take home pay would be $5,000.
- Now, you can get the maximum mortgage payment amount by multiplying your monthly take home pay by 25%. This would be the mortgage that you would get based on your monthly income. So, you have a monthly earning of $5,000 which means that your monthly house payment would be around $1,250 per month. We have mentioned a calculator below on which you can calculate the house affordability along with down payment and maximum house payment.
- Use the Mortgage Calculator with your take home income to determine the aspects said above. For a $5,000 income per month, here are some of the options on a 15-year fixed rate mortgage –
- $187,767 home with a 10% down payment ($18,777)
- $211,238 home with a 20% down payment ($42,248)
- $241,415 home with a 30% down payment ($72,424)
- $281,650 home with a 40% down payment ($112,660)
You must remember that the above figures are just estimate. There are other factors including that of property tax and homeowner’s insurance which will affect your monthly mortgage as well. For, example if you take the mortgage amount of $211,238 with a down payment of 20%, then the maximum monthly payment would increase from $1,250 to $1,515. This includes the additional tax of $194 and insurance amount of $71.
Maximizing the Down Payment
For any mortgage to be less of a liability on you, the down payment must be maximized first. The more the cash you inject, the less the money you would be required to finance. This would also mean a lower mortgage payment each month and then faster time to finish off the payment and wear off the load you carry. Anyone would suggest to buy the home with 100% cash but ownership is important given the ever increase in the property rates. So, when you finally have the cash, the property rate might increase by 20%. But to be on the safe side and handle less mortgage, you must go in with at least 20% down payment. This helps in other way by abstaining you from paying Private Mortgage Insurance (PMI). This has to be given in the event of down payment of less than 20%. It protects the mortgage company when you don’t make the payments right.
These are some of the most important factors when you go out looking for house mortgage amount to buy the dream you have been stalling. A house can be the reality to many such dreams and house mortgage can help you get to that easily. But in doing so, you must have your basics cleared first.