When you apply for a home loan, the lender will evaluate all of your bills to determine how large of a mortgage you can afford. They have a maximum percentage of your income that may be allotted to a house payment. However, this number doesn’t always work for you. If you don’t know your own magic number, you can get in trouble.
Why You Need Your Own Limits
Just because you are approved for a house with monthly payments of $3000 doesn’t mean you are comfortable with that amount in your budget. While you won’t be able to get a mortgage for more than the lender approves, you should not feel compelled to spend as much as you are approved for either. The lender takes into consideration all of your monthly bills, but you may want to factor in other expenses.
For example, you may like your daily stop at the local coffee shop where you purchase a $6 cup of java every morning before you go to work. That translates into $120 per month. Maybe you don’t have a set amount you like to spend, but you go shopping for new clothes or out to eat every month.
If you don’t include these luxury expenses, you may find it difficult to make your mortgage payments when you use up more of your income than what was planned for. Most people can’t give up these little extras for the long-term, which will take up a portion of your budget.
How to Calculate Your Own Budget
Before you go shopping for a home, track your spending for a couple of months. Write down all of your miscellaneous expenses with a description of what they were for.
Once you have an idea of how much you spend on items other than your regular expenses, add that money in to your budget. This will help you know how much you are comfortable paying for a home even if your lender approves you for more.
Other Considerations
In addition to the fun items on your list, think about unexpected expenses. Budget in money for savings, so you don’t end up falling behind on your mortgage because of an unplanned expense.
You’ll also want to consider any remodeling you’ll want to do on your home. Factor in this cost so you can have the money to do what you want with your new space while still keeping up with your monthly house payment.
Brooke Boles
Coldwell Banker Realty
501 E Camino Real
Boca Raton, FL 33432
561.595.4473
Brooke.Boles@CBREalty.com
www.BrookeSellsBoca.com
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