How to Calculate and Budget for your New Mortgage

Buying a home is probably going to be the largest purchase that you ever made. Since most homes are going to cost a lot more than what you make in a year, you’re probably going to have to get a mortgage.  While that’s fine and dandy, you have to understand that you just don’t want to set out and fill out the first mortgage application that you see. Instead, what you’re going to want to know is how to budget properly, figure out your payments and where you should look for a mortgage.

how to calculate mortgage

The Size of your Payments

First off, it’s important to know what you’re going to pay each month.  Failing to pay your mortgage can quickly put you in a financial mess.  Not only will you lose your home and potentially put your family in the streets, you will soon have a credit score that no lender will even want to touch.  Most experts note that your mortgage payments should be less than 30% of your take home pay.  So for example, if you take home $4,000 a month as a family, your mortgage payment including taxes should be no more than $1,200.  Remember, not only are you going to pay a mortgage payment, but you’re going to have to pay insurance and taxes.  Don’t forget to factor this in!  To find out what your payment is going to be, it’s actually very easy.  There are thousands of mortgage calculators online that can help you determine your payments.

The Considerations – Will the Bank Loan to you?

Even though you may have the best credit score on the planet, this doesn’t mean that the banks will loan to you. Aside from your credit score, the bank will want you to confirm your income by looking at tax returns and they will want to look at your debt to income ratio.  If your total debts exceed more than 30%, there could be a good chance that the bank denies your mortgage application.  If this is the case in your situation, don’t worry just yet.  Instead, plan on paying down that debt aggressively because it’s only going to help you in the long haul.  If you do meet the expectations, that’s great!  There’s probably a rather good chance that most banks will be pounding on your door ready to lend to you.

Mortgages – Where to Get One

Mortgages can be found just about anywhere.  With the Internet evolving the way it is today, you can either compare mortgage rates online, or if you’re old fashioned, you can consider talking with a mortgage broker to help you with your hunting.  With a mortgage, just make sure that you’re talking with both major banks and local credit unions.  What you’re going to find is that all their rates and policies are going to widely vary. As long as you get at least three to five quotes, you should feel comfortable signing up for a loan.

The Risks

If you found the house of your dreams, but you’ve found that the loan is more than 30% of your take home pay, you’re going to risk a lot in the future.  The term “house poor” comes from those who spend more than 50% of their income on their house payments.  With that much money going into your house, this will leave you with no money left over to enjoy vacations, save for retirement or buy your next car.  It can be tempting to sign that loan, but just remember these risks when doing so.  It’s best to avoid it!

Getting a mortgage can be a lengthy process.  Before you even consider looking at a home, throw in the factors mentioned above.  It also is best to get approved so that you’re not wasting the real estate agent’s time.  As long as your credit score is high, you spend less than 30% on your mortgage payment and your income meets the bank’s satisfaction, there’s no reason you won’t get denied for a mortgage.

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