For virtually anyone preparing to buy a new home, a primary consideration will be a mortgage loan to help finance the purchase. Buyers will have to consider not only the price of the home they desire and their general budget, but also areas like taxes, insurance, closing fees and others when determining how much to borrow from a lender.
At Daybreak Living, our real estate agents are here to not only help you locate and buy homes for sale in our numerous communities, but also to offer expertise and advice on numerous areas, including mortgages and borrowing. Today’s blog will focus on some general rules of thumb when it comes to how much you should be borrowing and how this compares to your overall financial picture, plus how these factors connect to your desired features and needs in your new home.
General Monthly Payment Limits
Very generally speaking, mortgage lenders and real estate agents will tell you that your monthly housing payment should not exceed 28% of your monthly pre-tax income. This payment will include the mortgage itself, but also things like your homeowner’s insurance, property taxes, utility payments and all others that are related to your housing in any way.
One major exception here is those who qualify for the FHA program or certain other specialty loan programs. Due to the great deals these programs often offer for first-time buyers or others in the home market, there may be situations where those utilizing these loans can use a higher percentage of their total income on their housing payments.
Savings and Debt
One of the key factors that will play a big role in how much you choose to borrow on a mortgage is your savings at the time in question. The biggest element here is your down payment – if you have enough saved up to make a 20% or higher down payment on the cost of the home you desire, you will avoid any need to carry private mortgage insurance, which can make a big difference in your monthly payment amount. In addition, the more you can add to the down payment, the less interest you’ll have to pay over the course of the loan and the less total money you’ll need to borrow.
On the flip side, it’s important to consider your current debts. If you have other significant debts like a student loan or multiple credit cards, that 28% figure we cited above is even more important to stick to, or even come in well below.
Housing Needs
As you consider these various factors, it’s also vital to be mindful of your true needs as a borrower. Just because you can technically afford a certain mortgage doesn’t mean you have to buy a home at that price level – if a lower-priced home is available that still meets all your needs, you can consider saving some money in case of future events.
For more on financial factors to consider when determining how much to borrow for a new home, or to learn about any of our real estate properties for sale, speak to the staff at Daybreak Living today.
Utah Dave - Daybreak Neighboorhood Expert and Local Resident