Percentage of Income for Mortgage: Finding the Sweet Spot
Discover the best percentage of your income to dedicate to your monthly mortgage payment. Learn how to balance problems associated with overspending against maintaining financial stability with this helpful article.
Finding the Sweet Spot: How to Determine the Percentage of Income for Mortgages
One of the most important decisions when considering the purchase of a home is determining what percentage of income should be allocated for a mortgage payment. Finding the perfect balance between the amount of house you wish to buy and what you can realistically afford is essential to avoiding financial stress and regret.
A general guideline when seeking a mortgage is to allot no more than 28 percent of your gross monthly income (before taxes) for a mortgage payment. This includes the base mortgage, taxes, and insurance. It is advised, however, that this number should be reduced to 25 percent of your income if your existing monthly debt payments, such as credit cards, are already high.
In addition to your monthly payment, you should also take into account the total cost of the loan, including closing costs, origination fees, and private mortgage insurance if applicable. Prioritize the costs you are required to pay in order to determine just how much of your income should be allocated to your mortgage payment.
Additionally, you'll want to do a personal debt analysis to ensure you are comfortable with the amount of debt you are acquiring. With such an analysis, you can see a realistic breakdown of cash-flow, which will allow you to make informed certification regarding your mortgage.
You should also remember to factor in potential expenses that may arise after moving into the home, such as furniture, repairs, and additional living expenses. All of these can add up and the surprise costs can cause a strain on your budget if not accounted for in advance.
Ultimately, the amount of income you should allocate for a mortgage depends on your current debt obligations and desired lifestyle. The key is to determine a balance between the amount of house you want and what you can feasibly afford, without putting too much strain on your finances.
Regardless of whether you borrow the minimum or a bit beyond, you should always make certain that your finances are in order thus allowing you to enjoy the home of your dreams without any added stress.