Before trying to get the maximum loan amount for your home loan, you must first consider if you could afford such a cost. However, do you know how to calculate the amount you would pay for your monthly mortgage payments? How would you know it is a cost you could comfortably afford every month?
How to Calculate What You Could Afford in Your Mortgage Payments
If you’re looking for the potential amount of your monthly mortgage payments, the Altius Mortgage Group says you can use a mortgage calculator that also calculates costs such as property taxes and homeowners insurance. You could also refinance your remaining mortgage rate in Utah and other places, and use a rate-and-term refinancing scheme to save money.
You might likewise consider adding your private mortgage insurance or PMI if you only spent 10% on your home’s down payment. Your property taxes and insurance premiums are based on where you would purchase your home, so make sure to check with your insurance providers to determine your premiums and research tax rates in the city or county the property is located.
Remember that under the Mortgage Reform and Anti-Predatory Lending Act, lenders aren’t allowed to approve loans unless they confirm that you could reasonably afford it. They also can’t underwrite a home loan that could take up 35% or more of your income every month. Likewise, the majority of lenders might even have stricter requirements, and would not approve loans that would take 28% of your income each month.
So What’s the Magic Number?
As a general rule, 28% of your monthly earnings is a well-rounded number when budgeting for a home purchase. To make it easier on you, multiply your monthly earnings by 28 and divide it by 100, giving you 28%.
According to the latest report by the U.S. Census Bureau, the median income for the average household is $55,700. Let’s say that this is your income, which means that you make around $4642 every month, and 28% of that is $1,230. However, consider subtracting your other expenses, such as utility bills and transportation or childcare costs from your total income each month to get a clearer estimate of what you could comfortably afford.