It’s safe to say that the homebuying process can be overwhelming – it can be difficult to know where to begin. One of the first things first time homebuyers should think about is their budget, and if a monthly mortgage payment can comfortably be a part of it.
The good news is, often times, it can! Especially if you’re already making some sort of housing payment. If you’re a renter, plug your current monthly rent into the formula below to get an idea of the price range you can be shopping in to keep your monthly mortgage payment about the same as your current monthly rent.
(Monthly rent payment / 6) * 1,000 = bottom # in your range
(Monthly rent payment / 5) * 1,000 = top # in your range
So, for example, if you’re paying $1,500 in monthly rent, you could plan to shop for homes in the $250,000 – $300,000 range to continue to pay about $1,500 for your monthly mortgage. This, of course, is just an estimate, but provides a good starting place.
When you’re seriously ready to start shopping and seeing some homes, a pre-approval is a must. Should you fall in love with a home and want to make an offer on it, your pre approval shows the seller that you’re serious, you’re ready to go, and you can afford that home. I always encourage my clients do some leg work up front before getting pre approved, to figure out what’s going to be affordable for them. Getting a pre approval from a lender and running with that number can be dangerous – Remember, that’s the MAX amount that you can borrow, and that doesn’t necessarily mean that the payment would fit comfortably into your budget.
Keep in mind that when you’re calculating your monthly payment for a home, you’re going to need to estimate the loan payment (including principal and interest), along with real estate taxes, homeowner’s insurance, and private mortgage insurance, if you have less than 20% down payment. Any extra payments, like a homeowner’s or condo association fee, would also need to be factored in. There are some really great calculators online to help you do this – I personally love Nerdwallet.
And of course, a local buyer’s agent is one of the best resources you can have as a homebuyer! They’ll be able to take you through the entire process, from figuring out your monthly payment, to cheering you on at the closing table.