Building your dream home is an exercise in imagination you likely have visions of the layout, design details, and outdoor landscaping of your future residence. One of the most important elements of the process needs to be tackled early on: determining how much you can comfortably afford to spend on your home. At Arista Development, we strive to help you with all aspects of the home ownership journey. Here, we give you some guidelines to understand what you might be able to spend on your home.
While this may seem obvious, calculating your total income is a necessary first step in formulating your budget. Begin by adding all sources of post-tax income you bring in typically, this calculation is based on a monthly formula. Your take-home pay is used in the next calculation: what you can spend on a monthly mortgage payment without jeopardizing the rest of your budget.
Traditionally, it is recommended to spend no more than 30 percent of your total post-tax income on housing. While some sources suggest budgeting 25 percent and others up to 36 percent, somewhere in the neighborhood of one-third of your total income is generally considered feasible. To determine your maximum recommended mortgage payment, simply multiply your monthly income by the percentage you determine to be workable. For example, if your take-home income is $5,000 per month, and you decide to devote 25 percent of your budget to your mortgage, your monthly maximum payment is $1,250. You can then plug that number into an online mortgage calculator (of which many are available) to get a grasp on overall home price that may work for you.
The other critical percentage to consider at this stage is your down payment. Again: traditional wisdom may apply: the standard down payment generally favored by home lenders is 20 percent, which will usually land you an attractive interest rate on your home, along with lower fees, more equity in the early stages of home ownership, and lower monthly payments. While many lenders offer loans with lower down payments, keep in mind that what seems like a great deal at the start, in terms of less cash required out-of-pocket, will cost more in the long-term.
There is more to your home budget than the down payment and monthly mortgage. Each lender will have a suite of loan fees to consider. You may also have a number of closing costs to factor in ? things like appraisals, application fees, and inspections. Further, you need to keep in mind standard home ownership costs such as insurance, utilities (which will vary greatly depending on the area you choose to live and the physical characteristics of your home), and ongoing maintenance and repairs.
Keeping these factors in mind will ensure that the home of which you dream can become your reality. Reach out to Arista to get the conversation started.