To figure out how much you can afford when you buy, first you’ll need to calculate how much of your gross monthly income can go towards your mortgage. Your goal is to have your monthly mortgage payment not exceed 28 percent of your gross monthly income. Although that percentage isn’t set in stone, you may need to adjust your numbers in terms of how much of a monthly mortgage payment you can afford.
Next, figure out your total debt and what percentage of your gross monthly income goes to that debt. This calculation will give you a rough estimate of your total household expenses. As a rule, your total debt should be no more than 36 percent of your income. Much like your earlier calculations with your monthly mortgage payment, 36 percent is just a general guideline.
You’ll also need to take into consideration general homeowner expenses. Not only should you look at one-time expenses such as moving and renovations, but also look at general expenses such as monthly maintenance, homeowners’ association fees and unexpected home repairs. For this, it’s a good idea to budget in 30-40 percent more than your monthly mortgage payment.
Finally, you’ll need to get a pre-approval from your lender. With a pre-approval, a lender determines how much they are willing to lend to you by assessing your financial situation. Once you have a pre-approval, you’ll know what your price range is for buying a home. Keep in mind that the purchase price of your new home can be less than what your lender is willing to lend you.
The key to not overextending yourself is to make sure you leave plenty of space in your budget for unforeseen costs and expenses. If you’re going to err, make sure you err on the side of affordability.
For more than 25 years, Omega Financial has been serving mortgage clients in Massachusetts. Our brokers have approximately 50 years in the mortgage business. You always will receive fast, courteous, and accurate information. Omega Financial, Inc. is a company duly licensed to operate in Massachusetts as a Mortgage Brokerage. We are located in the Town of Norwood, Massachusetts where we have been operating as Omega Financial Incorporated since 1988. Licensed by the Commissioner of Banks - License No. MB2671