Establishing the Price Range That’s Right for You
Buying a home can be one of the most exciting events in life, however, as with any large purchase, it’s important to establish a price range that fits your income and lifestyle. Feeling like you’re married to your mortgage payment is never any fun and can be especially difficult when you have moved to Sedona to enjoy all that Sedona has to offer only to find out your mortgage payment is too big.
How Much Can You Afford?
Start with the Facts
The amount you can spend on a home breaks down to how much of the total home cost – monthly payment (PITI:principal, interest, real estate taxes and home insurance) you can afford to pay off each month – in other words, your mortgage payment. Typically, this amount depends upon:
- Your cash on hand. The more you can contribute to the cost of the home upfront ( your down payment), the lower your monthly payments will be.
- Your monthly gross income. No surprise here, the amount of money you make each month directly affects how big of a mortgage you can afford to pay off.
- Your outstanding debt and debt payments. The amount you already owe will subtract from how much you can afford to spend on your monthly mortgage payments.
Figuring out how much you can afford to spend on a home is essentially a balancing act between the three items above (cash, income, debt). The general rule of thumb is that your total monthly loan payments (including your total housing cost, car loans, child support and alimony, credit card bills, student loans, etc.) should not exceed 38% of your gross monthly income. So how much of that 38% should go toward your home payment?
Ideally it breaks down like this: your total monthly mortgage payment (PITI:principal, interest, real estate taxes homeowners insurance and HOA fees, if applicable) should be (at most) 28% of your gross monthly income, leaving 8% of your monthly income to go toward paying off debt you’ve already collected. In some cases this isn’t possible – if your debt payments currently exceed 8% of your monthly income, lower your mortgage payment accordingly to maintain a debt level at or under 38% of your gross income.
These are general guidelines that have been established over many years. Had they been adhered to during the last 10 years a large portion of the real estate “crisis” we have been in for the last 6 years would more than likely have been avoided.
For more information on determining the right price home for you sales simply fill out and submit the contact form below or as always just call me on my cell phone at 928-300-7141 or contact one the Sedona Area Mortgage Lenders on my website.I respect your privacy, any and all information provided is strictly confidential. I will not sell or share your personal information with any third party.