Q: I’m looking at getting a mortgage. How much should I budget for my monthly payment?
A: Housing costs vary from city to city and neighborhood to neighborhood, but the general rule is to spend no more than one-third of your monthly household income on a mortgage. When calculating how much you can afford, remember to take into account any current debt, your savings goals and monthly expenses such as groceries and entertainment. Use your current rent as a starting point for comparison: What percentage of your income do you pay on rent? Is it sustainable, could you afford to pay more or should you scale back?
Spending too much on a mortgage is a rough hole to dig out of, so remember to take other costs into consideration. Insurance, repairs, closing costs and legal fees can all contribute to a higher-than-expected bottom line. If you choose a mortgage that’s realistic for your budget, however, you’ll gain financial flexibility as you earn equity. If you keep renting, keep in mind that your rent will go up over time. A recent Harvard study reported that nearly half of renters are “cost burdened” because their rent exceeded 30% of their income, while one in four renters pay more than half of their income for rent.
If you’re thinking of buying a home, speak to Fidelity Bank Loan Officer to request pre-approval for a mortgage.