Buying a home can be a daunting task. How much should you spend though?
A good rule of thumb is about 30% of your take home pay should be used on Principle, Interest, Taxes, and Insurance or (PITI).
The mortgage lender may want to lend you more than you want to use.
But let's say you are selling an existing home and will have proceeds from that existing home to use on the purchase of your new home.
What would that look like?
Let's use an example before this gets too confusing.
You and your spouse bring home after taxes an income of $6000 a month.
Your current home, after you sell it and pay the closing costs will have proceeds of $100,000.
30% of your monthly income is $1800.00.
Can you afford a $340,000 home?
Down payment of $100,000
30 year note on $240,000 with a fixed interest rate of 3.5% = $1,077.71 monthly
Annual Insurance of $2000.00 = $166.67 monthly
Annual Taxes $6,120.00 or 1.8% if escrow = $510.00 monthly
An HOA fee $150 quarterly = $50 monthly
The payment would be about $1804.38
That is right where we said we want to be.
The calculation can be made similarly if you wanted to change the rule of thumb or the term on the mortgage, say you wanted to only look at 15 year mortgages or you wanted to have the mortgage be only 25% of your take home pay, that would work too.
The main take away is to understand and budget for your new home we want you and your wallet to be happy after the sale.
Use a calculator for these calculations, I do. I use Mortgage Calculator + in the iTunes app store, it’s $0.99 but well worth it.
If Texas Classic Homes can be of any assistance I helping you with your new home, remodel, or addition please let us know.