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4 Tips to Determine How Much Mortgage You Can Afford

By knowing how much mortgage you can handle, you can ensure that homeownership will fit in your budget.

Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget.

Why not just take out the biggest mortgage a lender says you can have? Because your lender bases that number on a formula that doesn’t consider your current and future financial and personal goals.

Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?

Consider those lifestyle issues as you check out these four methods for estimating the amount of mortgage you can afford.

1. Prepare a Detailed Budget

The oldest rule of thumb says you can typically afford a home priced two to three times your gross income. So, if you earn $100,000, you can typically afford a home between $200,000 and $300,000.

But that’s not the best method because it doesn’t take into account your monthly expenses and debts. Those costs greatly influence how much you can afford. Let’s say you earn $100,000 a year but have $1,000 in monthly payments for student debt, car loans, and credit card minimum payments. You don’t have as much money to pay your mortgage as someone earning the same income with no debts.

Better option: Prepare a family budget that tallies your ongoing monthly bills for everything — credit cards, car and student loans, lunch at work, day care, date night, vacations, and savings.

See what’s left over to spend on homeownership costs, like your mortgage, property taxes, insurance, maintenance, utilities, and community association fees, if applicable.

2. Factor in Your Downpayment

How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which protects the lender if you default and costs hundreds each month. That leaves more money for your mortgage payment.

The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.

But, if interest rates and/or home prices are rising and you wait to buy until you accumulate a bigger downpayment, you may end up paying more for your home.

3. Consider Your Overall Debt

Lenders generally follow the 43% rule. Your monthly mortgage payments covering your home loan principal, interest, taxes and insurance, plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 43% of your gross annual income.

Here’s an example of how the 43% calculation works for a homebuyer making $100,000 a year before taxes:

  1. Your gross annual income is $100,000.
  2. Multiply $100,000 by 43% to get $43,000 in annual income.
  3. Divide $43,000 by 12 months to convert the annual 43% limit into a monthly upper limit of $3,583.
  4. All your monthly bills including your potential mortgage can’t go above $3,583 per month.

You might find a lender willing to give you a mortgage with a payment that goes above the 43% line, but consider carefully before you take it. Evidence from studies of mortgage loans suggest that borrowers who go over the limit are more likely to run into trouble making monthly payments, the Consumer Financial Protection Bureau warns.

4. Use Your Rent as a Mortgage Guide

The tax benefits of homeownership generally allow you to afford a mortgage payment — including taxes and insurance — of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.

Here’s an example: If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.

However, if you’re struggling to keep up with your rent, buy a home that will give you the same payment rather than going up to a higher monthly payment. You’ll have additional costs for homeownership that your landlord now covers, like property taxes and repairs. If there’s no room in your budget for those extras, you could become financially stressed.

Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.

By: G. M. Filisko

Published: August 20, 2014

Related: More on Mortgages from HouseLogic

Posted in: Flathead Valley Real Estate

KM Ranch Rd Parcels

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Enjoy the expansive mountain views from these desirable properties just off KM Ranch Road. Peaceful country setting located 10 minutes from downtown Whitefish and 15 minutes from downtown Kalispell. Level acreage with 5 adjacent parcels listed for sale.

MLS # 337429 20 Acres $200,000

MLS #337430 38.94 Acres $369,550

MLS # 336500 30 Acres $270,000

MLS #21609805 20.11 Acres $180,963

MLS #21609799 20.10 Acres $180,891

https://flatheadpropertysearch.com/KMRanchRd

Posted in: Flathead Valley Real Estate Tagged: 59937, Columbia Mountain Views, KM Ranch Rd, KM Ranch Rd Whitefish MT 59937, Montana, Montana Land for Sale, Mountain Views, MT, Whitefish, Whitefish Mountain Views

65 Doble Rd Kalispell, MT 59901

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Build your dream home on the 8.97 acre lot with fantastic views of the mountains and valley below with easy access to this upscale subdivision with beautiful homes close to national forest access and miles of trails. Driveway has been roughed in. Electric to property.

MLS# 21602894   $125,000

Posted in: Flathead Valley Real Estate Tagged: 59901, Acreage for Sale, Kalispell, Montana, Mountain Views, MT, Whitefish Mountain Views

SUNNY, SNOWY, SPECTACULAR NORTHWEST MONTANA

lakeblainesnow

Posted in: Flathead Valley Real Estate

MONTANA RIVER

montana-river

Posted in: Flathead Valley Real Estate

Custom Home in Whitefish

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http://www.virtuallyshow.com/60174

 

Beautiful custom 3-bedroom, 2-bath home on 4.35 wooded acres. This beautiful home has a spacious custom kitchen with knotty hickory cabinets, hardwood floors, covered decks, attached sunroom, theater room and more. Whole home is wired for surround sound! New carpeting in basement has a higher R value underlay and is especially designed for radiant floor systems. Entire home has radiant floor heating including the garage! Double car garage with carport, and paved parking on this 4.35+/- acres bordering State Land. Great opportunity for outdoor recreation, summer & winter with its close proximity to Stillwater River, Logan Creek and Tally Lake and only 20 minutes to Whitefish.

1110 Old Stone Road, Whitefish, MT 59937
MLS #21606249 

$400,000

Posted in: Flathead Valley Real Estate Tagged: Glacier National Park, MT, Stillwater River, Tally Lake, Whitefish

Flathead Lake Land & Home | Kalispell, Whitefish, Flathead Lake Real Estate

Posted in: Flathead Valley Real Estate

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dusty-dziza"Hi I'm Dusty Dziza, owner/broker of Flathead Land & Home Inc. Welcome to our real estate search website for Montana's Flathead Valley and surrounding Northwest Montana communities. You can contact us directly here. Enjoy your property search!"

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