If you are about to begin your search for a new home, especially if you are a first time home buyer, it’s important to know and understand exactly how much home you can actually afford. Often times a potential buyer will think about purchasing a home and have no idea what price range they should look in or what type of payment they can afford until it’s almost too late. Another fact that many people may not be aware of is that in addition to your mortgage payment you are also required to pay a monthly insurance premium and property taxes. These two things added in with your mortgage payment can make a significant difference in just how much home you can afford.
A good way to determine how much home you can afford is to find out your interest rate factor or look at an amortization chart. If you don’t know this, you can search online for it. Once you have determined your interest rate factor, you want to multiply it by the amount of your mortgage in $1000s. For example, if you have a 5.25% interest rate on a 30 year mortgage, your interest rate factor is 5.52. If you have a $140,000 mortgage you would take 140 (the mortgage amount in thousands) times 5.52 (your interest rate factor). The number you come up with should be approximately $773, which would be your monthly mortgage payment, however you need to remember that insurance and property taxes will be added into this. So, if $800 is the maximum amount you can afford on a mortgage payment, you may need to look at a home that is priced for less.
It’s also important to note that the information you find online, while very helpful in determining how much home you can actually afford, shouldn’t be the only advice you seek. Before obtaining your mortgage you should also talk with your lender and homeowner’s insurance agent to find out what your actual mortgage payment and property taxes will be as well as what you can expect to pay for your monthly insurance premium.