One of the biggest decisions you make during your life is buying a home. But while finding a house that meets your wish list in terms of style, number of rooms, location, etc. is important, the bigger issue is making sure your mortgage is something you can realistically afford.
According to a survey from the National Association of Realtors, nearly 75% of Americans believe it’s a good time to buy a home, not surprising given the current interest rates. The trap that many homebuyers fall into, however, is that they qualify for a mortgage that exceeds what they should be willing to pay.
So what can you do to avoid falling into the trap? Here are some helpful tips:
The 25 Percent Housing Guideline
A recent Bankrate
report found that more
than 80 percent of current homeowners say it’s difficult to save money because of their mortgage payment. Given the other areas where you will need to spend money, financial planners recommend spending no more than 25 percent of your monthly budget on your housing – which includes your mortgage, homeowners insurance, property taxes and maintenance.
20% Down Payment
If possible, a 20 percent down payment is ideal. The reason is a down payment of 20 percent will enable you to avoid having to pay mortgage insurance. If your down payment is less than 20 percent you typically have to pay private mortgage insurance which can cost up to 1 percent of your entire loan amount until you reach the 20 percent threshold.
Don’t Predict The Future
Deciding to get a mortgage for a higher amount than you can comfortably afford because you believe your income will go up in the future can be a dangerous game to play. Unemployment, other loss of income or other life events that impact your finances can happen and when they do you don’t want to be a position where your mortgage becomes a burden you can no longer meet.
Establish An Emergency Fund
Sometimes the unexpected does happen and when it does you want to be prepared to still be able to meet your mortgage payment. Establishing an emergency fund to help pay your mortgage and other monthly expenses can be a big help. And starting with a mortgage payment you can readily afford is a great way to have the ability to put money into your emergency fund on a regular basis.
Mortgage Tools From JBT
In addition to several different mortgage options, JBT has some helpful tools to help you through the mortgage process, including a link where you can learn more about the mortgage pre-qualification
process. Plus you can use one of our mortgage calculators