One of the biggest questions Reno homeowners ask themselves is “How much can I afford?”. Just because a mortgage lender tells you that you qualify for a particular loan amount doesn’t mean that you HAVE to spend that much on a Reno home. It also doesn’t mean that you can necessarily fit it into your current lifestyle either. In order to determine how much of a mortgage payment you can reasonably figure into your budget, you will need to consider the following:
In general, experts suggest that you spend no more than two to three times your annual gross household income on a Reno home. For example, if your household income is $90,000, you shouldn’t spend more than $180,000-$270,000 on a home. This will help keep your payment “reasonable” in accordance with your income level.
Your downpayment can have an effect on how much Reno home you can afford as well. The higher your downpayment, the lower your mortgage payment will be and, therefore, the more home you can afford. If you put at least 20% of the sales price down, you may not have to pay PMI (Private Mortgage Insurance), which is required by law when you borrow more than 80% of the home’s sales price to purchase it. On the flip side, the less of a downpayment you have, the more money you must borrow, which makes the mortgage payment higher.
Take some time to sit down and hammer out a household budget. How much do you owe in car loans, revolving credit and student loans? What do you spend in groceries, entertainment, utilities, etc. per month? To keep your mortgage payment affordable, real estate experts suggest that your monthly mortgage payment, taxes and insurance should not take more than 28% of your income. Additionally, your total monthly bills (including loan payments, car payments, credit cards, etc.) shouldn’t take more than 41% of your income when you factor in your mortgage payment. Studies have shown that homeowners who use more of their income than this tend to struggle to make their home payments. You don’t want to be in that statistic.
If you currently rent a Reno home, you can use this amount to help you determine what you can afford in a Reno home payment. Since homeowners receive a break on their taxes that renters do not, another rule of thumb is that you can actually afford a home payment approximately 1/3 more than what you currently pay in rent per month. For example, if you pay $1200 per month in rent, you should actually be able to afford a $1596 monthly mortgage payment without having to adjust your lifestyle at all.
Determining how much Reno home you can afford comes down to your annual income, how much money you have to put down on a home and your household budget. Just because you QUALIFY for a higher amount doesn’t necessarily mean that you want to PAY that much every month. Everybody’s situation is unique. If you need any help purchasing a Reno home for yourself, please contact me.
Charlene Hamilton, Certified Distressed Property Expert, Helping Reno Homeowners Avoid Foreclosure
Originally posted on my Reno Relocation real estate blog here: http://activerain.com/blogsview/2703639/how-much-home-can-i-afford-.
