Purchasing a home is the biggest investment most families will make. Buying a home that’s within your family’s budget will ensure there aren’t any problems getting the mortgage paid on time each month and providing the basic necessities for the family at the same time.
Most mortgage experts suggest that a mortgage payment shouldn’t exceed 28 percent family’s monthly gross income. In addition, the family’s debt-to-income ratio should be no more than 36 percent. A debt-to-income ratio is how much of a family’s monthly gross income must be paid on debt.
It’s common to see lenders require a mortgage applicant have a debt-to-income ratio of 28/36, which means that each month the expected mortgage payment for a family with a $45,000 yearly income should not exceed $1,050. This means that the maximum home price would be $180,000.
When considering home price and investment, it’s also important to consider all the extra costs that come with owning a home that aren’t often present in a rental situation. Renter’s insurance is often less than $20 a month while homeowner’s insurance may be several hundred dollars.
Depending on the type residence purchased, there could also be monthly homeowner association (HOA) fees as well as additional utilities like trash collection, which are typically covered within a rental payment. It’s also essential to consider that there would be property taxes due each year, and that in some locations property taxes could reach thousands of dollars.
The best way to find the perfect home is to figure out a maximum mortgage payment and begin the housing search only after this number has been calculated. There’s no reason to find the perfect home only to learn that the price would exceed a family’s highest possible mortgage payment.
It’s also important to present a clean credit history to the bank or lending institution so that the bank may place confidence in the borrower that the loan will be repaid. Lenders suggest that a borrower checks his or credit report before applying for a mortgage, to make sure there are no mistakes or other issues on the report that might prevent mortgage approval.
Some final considerations for the costs associated with a home purchase include the additional money required for closing costs, and whether the family has enough money in reserve beyond the down payment to pay the mortgage and monthly bills if something happens to the breadwinner’s employment situation.
Buying a home should be an exciting experience and will provide the family with many happy years of backyard barbecues, family gatherings, and memories, so it’s important to start the process off right and understand how much house may be afforded on the family’s current income.