How to Budget for Your MortgageJul 20, 2022 ● By The Hood Magazine
Sponsored By: DVN Mortgage
Buying a home is one of the biggest ﬁnancial investments you can make in life. People buy and sell houses all the time, though, so it doesn't seem like such a big deal. The truth is, properly budgeting for your mortgage is a crucial step in the home-buying journey—just as important as ﬁnding the right house.
In this article, I address a few key questions that homebuyers should consider when budgeting for a mortgage, whether for a ﬁrst or ﬁnal home.
How large of a home loan can I aﬀord?
When starting your house-hunt, have an idea of what you are comfortable spending on a mortgage payment every month. If your pre-qualiﬁcation amount is more than you think you’d like to spend, go with what you feel you can aﬀord while maintaining your standard of living.
You don’t have to spend as much as the bank is willing to lend you.
Remember that lenders don’t look at net pay, but rather your gross income—earnings before taxes and deductions. Don’t forget to take your other debts into consideration, too. As long as your current debts, including the new home loan, don’t exceed a debt-to-income ratio of 43%, lenders are typically comfortable backing your loan.
How can I add a new mortgage into my budgeting mix?
If you’re already a homeowner, you’ll likely have a good idea of what your new home will cost. If you are renting, think about how much you pay for rent. Now think about how increasing that number will impact your budget. Are you comfortable with your rent amount for a house payment knowing that unexpected housing costs may happen?
Unexpected costs always seem to pop up for homeowners. We recommend having one month’s pay in a savings account set aside for the unexpected.
If you’ve never created a personal budget, now is the perfect time to start one. Many tools exist (beyond spreadsheets) to help you track income and expenses. And chances are that the pre-qualiﬁcation process has already helped you get a jumpstart on analyzing your ﬁnances.
In general, try to keep your total house debt within 30% of your overall budget. Also, be sure to budget for utilities, home insurance, property taxes, and mortgage insurance if you don’t have a 20% down payment.
What other steps can I take to ensure financial success with my mortgage?
Don’t let your mortgage payment replace your hobbies and ambitions. You should still be able to do the things that you enjoy and save between 10–20% of your income.
Also, if you can't aﬀord repairs, it may be best to avoid a ﬁxer-upper. When you get
pre-qualiﬁed for a loan, even if you don’t buy a home that’s worth the full amount, the bank will still only lend you the price you pay for your home. They will not provide additional funds for home repairs. If that’s something you want to do, a construction loan may be a good option.
Going with a bank that oﬀers several loan options allows you to get what you need to be a happy homeowner.
Finally, be sure to consult with an experienced mortgage banker along the way. With over a decade of experience in the regional market, I'd be happy to sit down and provide additional advice about budgeting for your next mortgage.
Reach out any time! Dawn – 605.271.9754
Member FDIC. Equal Housing Lender.