How can I determine if I can afford to buy a home and pay a mortgage?
To determine if you can afford a home and take out a
mortgage, consider your other financial priorities and focus on what is affordable rather than just the maximum amount you qualify to borrow.
Lenders often inform you of the maximum loan amount they're
willing to lend based on standard income-to-debt ratios calculated by online
calculators. However, the amount you can borrow and comfortably repay can differ significantly, impacting your ability to cover other
essential expenses. Lenders may not consider all aspects of your financial and
family situation.
Carefully assess your family's income, expenses, and savings
goals to establish a mortgage payment that fits comfortably within your budget. Consider potential future changes in your mortgage payment depending on your mortgage type. Anticipate how increases in your mortgage
payment could affect your overall budget.
When determining affordability, factor in additional
expenses associated with homeownership, such as homeowner's insurance, property
taxes, and possibly private mortgage insurance or homeowners association fees.
These costs are typically included in your monthly mortgage payment.
Additionally, you need to budget for ongoing maintenance and repairs for your home. You can
obtain estimates for these expenses from your lender, homeowners association,
local tax assessor, and insurance agent. Knowing how much you can afford to pay
comfortably each month will help establish a reasonable price range for
your new home.
Tip: Avoid sacrificing savings to afford a larger home.
Consider your savings carefully when evaluating your budget for an affordable
mortgage payment. Even as a homeowner, you'll likely need to continue saving
for emergencies, retirement, children's education, and other financial goals.
Increasing contributions to your household or emergency fund can help cover
costly replacements, unexpected repairs, or other essential needs without debt.
