How Much House Can You Afford?
Before you begin the home searching process, you should determine how much house makes sense for your family. Unlike renting a home where you’re responsible for only the rent and utilities, there are a few other costs that go into owning a home you might not have considered.
It’s important to have a good idea of what your monthly costs will look like before buying a home, that way you can find a house that is a true blessing to you rather than a burden. It’s a good rule of thumb to keep your monthly mortgage payments to no more than 25% of your take home pay. This will give you plenty of room for other expenses you might have during a month, not to mention fun stuff!
Determine the Actual Cost of a Home
There’s more to a home purchase amount than you might expect. Here are a few costs that may add to your monthly payment.
Mortgage payment amount. I’m sure you already expected this one, but keep in mind that this payment amount can change depending on the length of your loan. Personally, I recommend a 15-year fixed-rate mortgage whenever possible, because the sooner you pay off your house, the less interest you’ll pay!
Interest rate. Expect to see your interest rate factored into your monthly mortgage payment. This amount will vary depending on the type of loan you have and your credit score.
Property taxes. The amount you pay toward property taxes varies based on where you live. The property tax rates in North Carolina are relatively low, based on the national average I’ve researched.
Homeowner’s Insurance. You are required to maintain homeowner’s insurance on your home and the cost varies depending on the provider you choose. You can expect to pay anywhere from $1,050 to $1,200 per year on average.
Private mortgage insurance (PMI). If you paid less than 20% down on your house on initial purchase, you will be required to pay PMI on your home in addition to other costs.
Homeowners Association fees (HOA). If you purchase a home where there’s an HOA, don’t forget to factor in those monthly fees as well. These fees vary depending on the neighborhood.
As you can see, there are a lot of costs that go into purchasing a home beyond the purchase price! Don’t worry, though, you can purchase a home with confidence by ensuring that you buy within your personal budget. To help you determine what your actual estimated monthly costs will be, I’ve added a mortgage calculator to my website!
All you have to do is set the fields to match your situation, and it will automatically provide an estimate for your projected monthly costs. Remember, these are estimates. Every situation is unique, so work closely with your lender and your real estate agent for guidance on what your monthly costs on a home will look like.
Once you determine how much house makes sense for you and your family’s monthly budget, you’ll have more confidence saving for a down payment. You’ll know for sure that you’re targeting a realistic home for your family’s needs!