Financial planners and mortgage loan officers will instruct potential homebuyers to stick to the 30/30/3 rule when deciding your monthly mortgage payment. Broken down, this means:
- You shouldn’t spend more than 30 percent of your gross annual income.
- You should have 30 percent of the cost of the home saved for a down payment.
- Or you should cap your budget for a new home at 3 times your annual gross income.
Sounds simple. And if you’ve been renting most of your life, the prospect of paying yourself instead of a landlord sounds fantastic. However – proceed with caution.
Establishing how much mortgage you can afford is very different than paying your monthly rent. It begins with pre-approval for a mortgage or pre-qualification. Your loan officer will review your finances and determine the maximum amount you qualify for as a potential home buyer. Key word – maximum. Just because you CAN afford a certain amount, doesn’t mean you should. This is because as a home owner you are financially responsible for much more than rent.
Costs Associated with Home Ownership
Home ownership expenses do not stop with a monthly payment. Remember you are your own landlord now. That means you are responsible for a leaky roof, a faulty furnace, and any other big issue that comes up.
Take into consideration additional monthly expenses:
- Fixed expenditures – water, electricity, health care
- Discretionary expenses – vacations, date nights, kid sports
- Current debt – student loans, credit cards, car
- Savings – retirement, college tuition, and unexpected home maintenance.
Access your goals:
- Do you want or have a family? How big?
- When you plan to retire? Do you want to retire early?
- What is your lifestyle? Do you like to travel? Eat out?
- What is your earnings potential? Will it increase with time?
Your loan officer can walk you through where you stand financially and how much mortgage you can afford. Having the peace of mind, knowing where to land with your monthly payment, sets the course for finding your perfect home and making it your own.
Your Monthly Mortgage Payment
Want to see what your monthly mortgage payment will look like? Contact us here to see some numbers