Are you planning to buy a house? Will you be able to afford the monthly payment? Indeed, you may have determined this by using a number of online calculators. However, you have to keep one thing in mind. Most of the calculations provide you with an estimate of the amount that you can borrow rather than the amount you can afford. What can lead to trouble is the fact that the two amounts are very different from each other in most instances.
Generally, most lenders assume that you will put around 36% of your income toward your mortgage payments and other debts that you have. These lenders also devote 28% of your income for your insurance and property taxes. So can you really afford around 30% of your income just for your home expenses? In most cases, the answer will be no. Thus, even if a lender agrees to provide you a loan and online calculator’s state that you can afford a home the reality may be a contrast to this. So how do you figure this out? Here is what we suggest.
Go through the calculations once more
Online calculators estimate amounts on the higher side, but their estimates regarding the amount a lender will grant you are very close. In most cases, no financial institution will lend you a greater amount. Now that you have an idea of the amount of loan you can get, you should choose a suitable monthly payment yourself rather than go with the suggestions the calculator provides you with.
Plan out your budget
Okay, no one fancies this task very much, but you have to go through with this. Doing so will ensure you do not face any financial issues later on. Plan out a detailed budget for yourself and set aside your average monthly expenses. With the amounts left, determine if you can afford a mortgage payment with what is left over. If you’re planning to buy a pricey home, you may have to cut down some of your expenses. But make sure there are no financial strains. A huge mortgage payment is no good if it uses up all your savings.
Try out the plan
Once you decide a mortgage amount, do not seek a home loan immediately. Instead try to save the estimated amount for a couple of months, and then apply for a loan. This will help you know if you can afford it in the long run.