mortgage budget Tag

Consumer debt among American families was recently
reported to total $12.73 trillion. To put this into
perspective, the US government debt is just shy of $20
trillion. The outrageous amount currently owned by
consumers is higher now than the peak reached in 2008
before the economic collapse. Although consumers are
handling this level of debt better today than they did in
2008, it still represents a tremendous risk to individuals
and our economy as a whole.
Interestingly enough, mortgage debt is now a smaller
percentage of total debt than it was back in 2008. Of
course, this is primarily due to tighter lending restrictions.
This means that Americans are holding more debt in
riskier loans such as credit cards, bank loans and car
loans for example. Much of this debt is subject to
fluctuating interest rates, which is now something we
need to consider as the Fed pushes short term rates
higher.
I believe that consumer debt is usually a habit. Unsecured
debt, such as credit cards, could be a sign of spending
more than the income flowing into the household. To
break this cycle, sometimes more extreme measures
must be deployed. If the goal is to get out of consumer
debt, it could be advantageous to use a mortgage or
home equity loan to help. With values rising to premarket
crash levels, most people have a decent amount
of equity in their homes. However, I strongly caution
against this without a plan to break the cycle that led to
the debt in the first place. Otherwise, the same situation
is likely to occur.

Overextending your budget is a mistake new homeowners often make. While your mortgage broker helps you to secure a source of lending, you worked hard to save for the down payment. What many do not realize is that you still need to keep saving money even after you have finalized the purchase.

Keep Building Your Savings

Buying a home with the maximum payment you can afford makes it difficult to keep your expenses under control. One of the best ways to guard against this pitfall is to over budget for your personal savings instead. Commit to setting aside money for yourself during the home buying process. It keeps you grounded in reality and gives you a funds to fall back on if things go wrong.

Repairs Are Always Unexpected

You are going to have to fix things that break, and you will have to pay for those repairs. As a renter, your cost to maintain your living structure was all included in the monthly rent. The landlord budgeted for repairs and paid for them as a business expenses. Many new homeowners overlook this cost and fail to realize that their homes will not stay in good shape without work. As a general rule, budget about two percent of your home’s value for annual repair costs.

It Takes Money to Have Some Fun

You are going to want to have some fun too. Over extending your budget puts you into an uncomfortable situation where your entire working life is spent trying to earn enough to keep your home. This leads to burnout. Resentment that can creep in and start to affect your personal relationships. Budget enough cash to stay happy and active.

Your home is a major investment. You want to have a secure financial structure that will ensure that your purchase stays profitable for you in all aspects. If you have gotten yourself into trouble with a payment that is barely affordable, your mortgage broker may be able help you to refinance.

When you’re thinking about purchasing a home, it’s a very exciting time with a lot of things happening all at once—you are searching with a real estate agent or on your own through local listings, touring homes to find out which one you might want, and putting in offers on the home of your dreams.

Sometimes in all the excitement of preparing to buy that home, though, people can forget to do one of the most important things: get pre-qualified and figure out exactly how much you can afford to pay for a home. The amount you pay for your home should go beyond just the amount you can get qualified to borrow, as there are several factors that influence whether or not you can actually pay for the home you purchase. Here are some tips to help you figure out exactly what home price range you should be looking for.

1: Calculating Your Borrowing Power

There are several factors that go into the calculation of how much money a lender will provide you to purchase a home, including:

  • Income
  • Credit history
  • Down payment
  • Employment history
  • Residence and mortgage history

Before you even start looking for a home, it is a good idea to figure out exactly how much the lender would be able to give you—this prevents you from looking at homes that are two or three times what you can afford, then being disappointed by the homes available in your price range when you have to go down in price. The good news is that virtually all lenders will “pre-qualify” you for a loan to give you an idea of where you are at.

2: Outline Your Budget

When a lender tells you how much they would be willing to lend for a mortgage, they are basing it on a general calculation that takes into account your gross monthly income, your total debt payments each month, and the estimated costs of owning your home. What it does not (and cannot) account for are your personal spending habits. If you know that you want to spend extra each month shopping for clothes or going to the movies, you need to take that into account by calculating your own personal budget and knowing how much you want to spend on a home. If you have a target payment amount (including principle, interest, taxes, and insurance), you can talk to your lender and have them help you figure out the price range of homes that will fit that budget.

3: Understand All the Costs of Buying a Home

Your mortgage payment will include several things, including the principle and interest payments for the home that you are purchasing, homeowners insurance, and property taxes—the latter two are often added to your monthly payments. If you’re not putting 20 percent down on the home, you will also have to get mortgage insurance, which will add to your monthly payments.

After all these expenses, you should also take note of other potential costs of owning a home that won’t be in your mortgage payment, but are also required every month, such as utility costs, home repairs, and homeowners association fees in some cases. By adding up all these anticipated costs (and being realistic) you can make sure you will be able to afford the home you get. You should also account for the costs of getting the loan, including mortgage application fees and closing costs. Talk to your lender to learn more about these costs.

Knowing the costs and making appropriate calculations can help you get a home you will love, and one that you can afford.