How Much Can I Afford?

Most of us have learned over the past few years that too much debt doesn’t feel good. So before you go out looking for homes that may be higher than you can comfortably afford, you should determine how much your monthly mortgage payments will be.

First, determine what down payment you have available. I highly recommend a 20% downpayment. But, there are lower down payment options, like an FHA loan which only requires 3.5% down. If you have less than 20% for a down payment, you’ll pay more every month in mortgage insurance.

Before you can determine what your payment will be, you’ll need several pieces of information:

Taxes: I can help you with information on tax payments, but for now, assume that a 1500 square foot Anthem AZ home will require $1600 per year in taxes.

Homeowner’s Insurance: Insurance will be about $100 per month (more or less depending upon several factors).

Interest rate: Contact your lender to determine what current interest rates are. I can also help with a ballpark percentage rate.

Mortgage Insurance:
If you have less than 20% down, you’ll be paying mortgage insurance. This amount can vary and changes occasionally, assume .5% for now.

Homeowner’s Association Fees: HOA fees should be considered as part of your monthly payment.

Once you know these amounts, you can determine what your monthly payment will be using a Mortgage Calculator. Suppose you find a home you like for $150,000. You have $30,000 to put down (which means the loan amount is $120,000) and you’re using a 5% interest rate. Taxes are $1600, and insurance is $1200. How much will your monthly payments be? According to the calculator, your monthly payments are $877.

Now you’ll have to determine whether that payment is comfortable for you to afford every month. If not, reduce the purchase price amount and re-calculate. Also, make sure that your monthly payment plus any credit card payments, student loans and car loans does not exceed 45% of your total income (41% of total income for FHA loans with the 3.5% downpayment.). If you’re debt is over these levels, the home payment IS NOT going to feel comfortable and you should concentrate on paying off some debts or finding a less expensive home.