Buying a home involves more than determining how much a lender may approve you to borrow. It is equally important to determine what monthly mortgage payment comfortably fits your household budget.
A mortgage payment that works on paper should also leave room for your other monthly expenses, savings goals, home maintenance and the unexpected costs that come with homeownership.
Start With Your Monthly Take-Home Income
Begin with the amount of income you actually have available each month after taxes and other payroll deductions. While mortgage qualification is generally based on gross income and applicable underwriting guidelines, your personal budget should focus on the money you actually have available to spend.
From there, account for your existing monthly obligations and normal household expenses. These may include:
- Car payments and other installment loans
- Credit card and other debt payments
- Utilities
- Groceries and household expenses
- Childcare or education expenses
- Transportation and fuel
- Insurance
- Retirement and other savings
- Entertainment and discretionary spending
Understand the Full Monthly Housing Payment
When budgeting for a mortgage payment, don’t look only at principal and interest. Your total monthly housing expense may also include property taxes, homeowners insurance, mortgage insurance and homeowners or condominium association fees.
Depending on the property and loan program, some of these expenses can significantly affect the total payment. Understanding the complete housing expense before you make an offer can help prevent surprises later.
Leave Room for the Costs of Homeownership
Homeowners also need to plan for expenses that renters may not have. Appliances eventually need replacement, heating and cooling systems require maintenance, and repairs can occur unexpectedly.
A comfortable housing budget should ideally allow you to continue saving while maintaining an emergency reserve rather than using every available dollar for the mortgage payment.
How Much Mortgage Payment Can You Comfortably Afford?
The maximum mortgage payment you can qualify for and the payment you personally feel comfortable making are not necessarily the same number.
Two borrowers with identical incomes may have very different financial priorities. One may prefer a larger home and a higher housing payment, while another may prefer a lower payment that leaves additional money for retirement, travel, children or other goals.
That is why I encourage homebuyers to look at both mortgage qualification and their overall household budget before deciding on a price range.
Consider Your Cash After Closing
Your budget should also consider how much money you will have left after purchasing the home. Using every available dollar for the down payment and closing costs can leave you without sufficient reserves for moving expenses, repairs or unexpected costs.
Depending on your situation and loan program, there may be advantages to keeping additional money in savings rather than making the largest possible down payment.
Plan Before You Start Shopping
Reviewing your budget before seriously shopping for homes can help you establish a realistic price range and understand how different purchase prices, down payments and loan options may affect your monthly payment.
If you’re considering buying a home in Maryland, Washington DC or Virginia, I can help you compare different financing scenarios and determine a comfortable range before you begin making offers.
Have questions about budgeting for a mortgage payment? Contact me and I’ll be happy to review the numbers with you.
Ready to explore your options? Start your prequalification online.
Mortgage qualification and available loan programs depend on individual borrower circumstances and applicable underwriting guidelines. This information is for general educational purposes and is not a commitment to lend.
