When you meet with your lender, he or she will give you a home-buying budget based on your income, debt, expenses, and assets.
However, in our experience, you shouldn’t max out your budget just because your lender indicates you can. This is a great opportunity to learn about what that budget means in terms of your monthly payment (which just includes principal and interest at this point) and remember you will also need to budget for:
- Private Mortgage Insurance (PMI) if you aren’t putting 20% down
- Property Taxes
- Homeowners Insurance
- Homeowners or Condo Association Dues
- Repairs and Maintenance
Let us give you an example. Let’s say you have been approved for a home that is up to $600,000 at 5.0% and are putting $125,000. So, we don’t have to worry about PMI. But how might this look as a monthly payment when we factor in property taxes and homeowners’ insurance?
| Principal & Interest|
|Property Taxes||Homeowners Insurance||Final Monthly Payment|
Take the time to do the math and don’t assume that just because you are approved for a certain amount that means that it is in your best interest to max that out.
Although you can also use our Mortgage Calculator, the table below illustrates the approximate principal and interest payment for a number of different loan amounts. If you are currently a renter, you might use this to find out approximately how much money you should budget, but remember that you also will need to include the other expenses listed above as part of your monthly payment.