How Much Mortgage Can You Can Afford For Your Home in Champaign – Urbana?
Prepare a Detailed Budget
Typically, most people can afford a home that costs 2 to 3 times their gross income for one year. In other words, if you earn $100,000 in a year, you should be able to afford a home between $200k to $300k.
The only issue with this is that it doesn’t take into account your monthly expenses. If we use the example of $100k per year income, and you have $1000 monthly debt payments, this leaves you with less money to pay the mortgage.
You should prepare a family budget that takes into account your ongoing monthly bills for everything — credit cards, car and student loans, lunch at work, daycare, date night, vacations, and savings.
Now you can see what’s left to cover the costs of owning a home, such as your mortgage, property taxes, insurance, maintenance, utilities, and community association fees, if applicable.
Factor in Your Downpayment
You also need to make sure you’ve factored in your down payment. Of course, the more you put down on a mortgage, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which protects the lender if you default and costs hundreds each month. That leaves more money for your mortgage payment.
Also keep in mind that if interest rates and/or home prices are rising and you wait to buy until you accumulate a bigger down payment, you may end up paying more for your home.
Consider Your Overall Debt
Lenders generally follow the 43% rule. Your monthly mortgage payments covering your home loan principal, interest, taxes and insurance, plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 43% of your gross annual income.
Here’s an example of how the 43% calculation works for a home buyer making $100,000 a year before taxes:
You might find a lender willing to give you a mortgage with a payment that goes above the 43% line, but consider carefully before you take it.
Use Your Rent as a Mortgage Guide
If you currently are renting, then you can use an online calculator to compare the costs of renting vs owning a home to see which makes the most sense for your financial situation.
If you’re struggling to keep up with your rent, buy a home that will give you the same payment rather than going up to a higher monthly payment. You’ll have additional costs for homeownership that your landlord now covers, like property taxes and repairs. If there’s no room in your budget for those extras, you could become financially stressed.
Also, consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.
Find out how much your home is worth in Champaign / Urbana now! Check back on our blog every week for more great reasons to call Champaign / Urbana home. Make sure to check out our property search feature to find the perfect home in Champaign / Urbana. And be sure to follow us on Facebook!
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