Creating a quality budget is an important task in anyone’s life, regardless of if you are a renter or a homeowner. However, when the time comes that you are interested in purchasing your first home, having a solid budget will become increasingly important.
If you are looking into mortgage financing and you are trying to determine what it is you can afford, we are here to help. We will work with you to determine what the best home loan rates are that you can receive and what type of mortgage will fit your particular needs.
As you go through the process of accessing the right home financing option, it will be critical for you to determine a budget that allows you to comfortably meet your monthly mortgage payments without landing you in a difficult place financially. Keep in mind that your lender can provide you with advice on what seems feasible for you to afford based on numbers, but at the end of the day, it is up to you to determine your actual monthly budget.
Check out these tips for how you can budget for your first mortgage, and reach out for help accessing the right home funding today.
#1: The Rule Of 28%
The first place to begin when considering a budget for your mortgage is with your current income. Whether you are planning to buy alone or you are combining your income with a spouse or significant other, take the time to calculate what your current total income is.
From here, the general rule of thumb is to calculate 28% of your monthly income. This is the highest amount you should be spending each month on your total mortgage costs. Remember, this needs to include not only the mortgage payment itself, but also any subsequent insurance you are required to carry.
Keep in mind that 28% is a general rule. It does not mean it is the perfect fit for your specific situation. It is, however, a great place to start. By seeing how much you could potentially afford, you can build out a budget from there.
#2: Calculating Your Current Costs
Once you have a rough idea of what you could ideally afford each month in mortgage costs, it is time to calculate the other ongoing costs you already have. These include the following examples:
- Monthly car payments
- Subscription fees, such as television services
- Credit car payments
- Student loan payments
- Insurance, including car and health
- Childcare fees
- Cell phone bills
These costs are ones that you know you will be paying every single month. They are usually fixed and are often non-negotiables. For example, if you have a student loan payment, you cannot do anything about that monthly cost.
However, some of these costs are flexible, such as subscriptions and memberships. Listing out all these monthly costs will help you understand exactly what percentage of your income you are already committing to other costs. This can also help you determine what costs are necessary and what might be negotiable.
#3: Preparing For The Unexpected
Once you have a good idea of how much you spend each month on bills, it is time to budget in some room for the unexpected. Unfortunately, life doesn’t always go smoothly and home ownership can open you up to a slew of unforeseen costs.
While unexpected costs are by definition impossible to fully plan for, you can ensure you have enough wiggle room in your budget that you won’t be derailed at the first bump in the road. This is why it is critical to assess your budget prior to accepting the home financing you are offered. Just because a lender will give you the money, doesn’t mean you can comfortably afford the payments.
#4: Looking For Areas You Can Cut
Now that you have a solid idea of what you are spending each month in bills and what you can afford in mortgage costs while still accounting for a hiccup here and there, take the time to look for areas that you can cut back.
The best way to cut back on spending is to focus on luxury items first. Do you really need three different television subscriptions or could you make do with one? Are there membership fees you are paying every single month that you aren’t even taking advantage of? Do you spend a lot in car payments to own more vehicles than needed?
Beyond just these luxury items, consider ways you might be overspending on necessary aspects of living. For example, you can’t go without food, but you can eat out less and opt for cheaper brands of products. Similarly, you do need a phone, but you don’t necessarily need the highest data plan or the newest phone.
Try to find areas where you can cut down on your costs. This will allow you to invest your money into a home, which will offer you a far better return on investment when compared to cars, cellphones, and other products that depreciate rapidly.
#5: Tracking Your Spending
Once you have determined what your monthly budget looks like and you have done your best to lower costs where you can, it is time to track your spending. Spend at least a month closely monitoring everything you spend.
If you don’t track your spending in a detailed manner, it is easy to go over your budget without realizing it. Often, we underestimate how much we are spending on a day-to-day basis. You can either track your spending by hand, utilizing a spreadsheet or other document, or you can utilize an app, such as Mint, to automatically track your budget.
#6: Working With A Quality Lender
Once you feel confident in the amount you can afford each month toward your mortgage, it is time to speak to a lender. Here at Patriot Home Mortgage, we know how daunting it can be to shop around for the best mortgage rates and ideal lending partner. That is why we are here to make the process simple.
Reach out to our team to learn more about what mortgage financing options are available to you. We will be happy to help you find the right mortgage for your specific budgetary needs.