How to know when you are taking too much


Buying a home is a huge undertaking, and for some people the thought of having to cover a mortgage payment every month is quite stressful. In a recent survey conducted by Ally Financial, 44% of homebuyers said they feel anxious about taking on mortgage debt. But if you borrow strategically, you can alleviate this concern.

How to land on the right mortgage amount

Let’s eliminate one thing. Mortgage lenders use their own formulas to determine how much of a home loan you qualify for. But just because you are approved for a given loan amount, that does not mean that is the amount you should borrow.

There are other factors to consider when deciding how much to borrow, such as your non-mortgage housing costs. These include things like:

Typically, your housing costs, including your mortgage and the items just mentioned – must not exceed 30% of your net salary. But even with this rule in mind, you may feel more comfortable sticking to an even lower threshold. This is especially true if you have a lot of unpaid debt or are paying a lot of money for child care and can’t afford such a high mortgage. It is therefore important to understand the amount of a home loan you feel at ease before embarking on a housing search.

Crunch these numbers

That said, it’s easy to look at a giant number on your mortgage document and get overwhelmed. If you borrow $ 300,000 to finance a house, for example, well, that’s a lot of money. But it’s important to know how that breaks down when it comes to your monthly payments.

Usually, your mortgage lender will give you this information in advance, and you can also use a mortgage calculator to run your own numbers. But one thing your mortgage lender can’t tell you is the cost of your home insurance. It will depend on the policy you buy and how much coverage you get, so you’ll need to get quotes to see what costs you’ll need to pay.

When it comes to property taxes and HOA fees, these should be disclosed to you when you buy your home. True, both numbers can change over time. You can, for example, start with an annual property tax bill of $ 4,000 that will increase to $ 4,400 the following year. And your monthly HOA dues could range from $ 250 to $ 270, depending on how your HOA board votes.

But generally speaking, you can get a good idea of ​​what your house will cost you before you buy it. And from there, you can make sure you’re comfortable with the mortgage you’re taking out before you go ahead.

Also watch out for interest rates

One more thing to keep in mind about your mortgage is that the lower the interest rate, the less it will cost you. That’s why it’s a good idea to shop around for a mortgage as part of your home purchase. One lender may offer a much lower interest rate on a home loan than another, so comparing your choices could result in ongoing payments that weigh less on your budget.

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