Have you decided to buy a home but are wondering how much you should spend? In this video, I’m going to show you how to determine a comfortable monthly mortgage in today’s market. I’ll explain why your price range is the most important part of your home search so you can narrow down the best house for you.
Determining Your Monthly Mortgage Payment
Buying a new house is exciting, but you might be wondering how much you should spend. Remember that when you buy a home, you're also committing to a monthly housing payment. That means the very first thing you need to do before you start looking at homes is find a price range that you're comfortable with.
The first thing we need to break down is every cost associated with your monthly mortgage payment. Knowing all of the costs involved in owning a property will help us determine what you can afford for your purchase price. It’s also not just the mortgage you’ll need to account for. My advice is to work the numbers backward so we can figure out what a comfortable purchase price is going to be. Then, we're going to look for a purchase price that reflects that number.
The largest monthly payment you're going to have is the one you make to the bank for owning a home. If you’re obtaining a loan, you’ll have a monthly mortgage payment that consists of principal and interest. This will be a fixed amount based on the loan that you have taken. A portion of it gets applied to interest, which goes to the bank, and the other portion goes towards the principle of paying down that mortgage loan.
Property Taxes, Special Assessments, And More
The next expense you'll have for homeownership is your property taxes and special assessments. You'll take your annual property tax and your special assessments and divide that number by 12 months. This will then be added to your mortgage. The special assessments include your hazard insurance—which is your home insurance—that will cover anything that goes on with your property while you own the home.
Another expense you might have is HOA dues, or homeowners association dues. You’ll normally pay these when you live in a condo association. It takes care of things like your water, sewer, garbage, lawn care, and snow removal services. It won't apply to every single property that's out there, but you’ll want to find out if this would be part of your monthly expense.
The last expense you might need to pay is private mortgage insurance (PMI). PMI covers the bank in case you default on the loan. It’s typically going to be applied to your mortgage, especially on an FHA finance mortgage, because they have more liability. If you go with a conventional mortgage, you can typically have this fee removed as long as you put 20% down. PMI varies anywhere from $50-$200, depending on the size of the mortgage.
A Successful Home Search
All of these costs will constitute your monthly mortgage obligation. Before we start looking at homes, we want to make sure that we're looking at areas that are within your budget and that you’re considering all costs that go into homeownership.
The last thing you want to do is go out and start looking at homes without knowing exactly what your monthly mortgage is. I've been in these situations many times where I've gone through a property with somebody that thought their budget was a lot higher than what it was. They got their hopes up, and that's the last thing we want to do for you.
I hope this helps you determine your search price with your ideal monthly mortgage. Our team helps people just like you every single day find their dream home, and we would love to sit down and assist you. If you want us to show you the full process and how to get from point A to point Z, feel free to reach out and I’ll be happy to connect!