Buying A Home
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First Time Home Buyer - What total mortgage should we aim for?
My wife and I are soon to be first time home buyers, and we're looking for a bit of basic advice. Our combined monthly take home pay is $3,170 and that is the bare minimum. It does not include any commissions we make or anything extra we may make on the side (eBay, that sort of thing). That is the base amount that we know that we will at LEAST bring home every month.
The following are our estimated monthly expenses... Electricity - $100 Water - $40 Cell Phone - $80 TV/Internet - $100 Life Insurance - $50 Auto Insurance - $100 Health Insurance - $300 Groceries - $250 Gasoline - $340 The above totals $1,370 which leaves us with $1,800 left over for the mortgage (including taxes, insurance, and mortgage insurance). Given the information above, and amusing we aren't crazy awful with our spending money (daily lunch, entertainment, and so on) what do you feel should be a comfortable total that we should be able to afford for our mortgage?
Our main weakness is eating out, have it be in sit down restaurants at night or fast food for lunch at work. We are in the process of working on that now so that will help a great deal.
We are simply looking for some opinions from outsiders. Thank you!
Re: First Time Home Buyer - What total mortgage should we aim for?
Hi Welcome!
This is a good start, but to figure out how much of a mortgage you can afford you first need to budget these items against your take-home/after tax pay. We cannot answer your question unless we know your income since your mortgage payment should be a portion of your take home pay. Also, do you have any other debts...student loans, cars, credit cards...if so, these need ot be factored into your budget.
Most here will recommend reading Home Buying for Dummies.
To prevent being mortgage poor your mortgage payment (including interest, principle, taxes, major utilities, and home owner's insurance) needs to be 25-28% if you live in a low to mid cost of living area, of your take home pay and needs to be no more than 30% if you live in a high cost of living area, of your take home pay.
For example, if you two earn $50k combined after taxes...your monthly mortgage payment should not be more than:
$1,041 at 25% ($50,000 x .25 = $12,500 annually, $12,500/12 months = $1,041)
$1,166 at 28%
$1,250 at 30%
Please remember, these dollar amounts INCLUDE the loan interest, principle, property taxes, home owner's insurance, AND the home's utilities (gas, water, sewer, trash, electric).
It is also exceptionally smart to have a sizeable down payment. Most posters here think 20% of the sale price is a good amount. But, you can get mortgage loans still even if you put less down.
By doing 20% you avoid PMI, you can get a lower interest rate, and you protect yourself from becoming upside down on the loan (means you owe more on the mortgage than the home is worth given current market conditions [which are subject to change]).
In addition, home ownership means your overall expenses WILL increase. You will be buying things like yard care materials, more supplies, more cleaning materials, more furniture...it can get expensive fast.
Lastly, do not buy a home unless you have an emergency fund in place of at least 3 months, but preferably 6 months worth of living expenses. This should be in addition to your down payment savings. The e-fund is essential for home owners to pay for things that break or need repairs...furnace, AC, water heater, appliances, roof, windows, vehicles, etc.
What about Clothing? Sure, you might not spend much but pair of jeans or two, new underwear, a few shirts, and a new bra for your wife can easily add up. If you only spend $200 twice a year you are still spending about $35/month that you aren't accounting for.
Cars- Are your cars in good shape? Will you ever need to replace them, have them worked on, pay for auto registration? There should be some kind of savings account for this type of thing.
Household items and toiletries- Paper towels, cleaning products, bug spray, toilet paper, makeup, shampoo, laundry soap, etc., etc., etc. Is this included in groceries? If so, that is a very tight budget and may be difficult to adhere to. You might want to either add another line item for this ro increase the grocery budget.
Eating out- I know you mentioned that you want to cut this down but are you planning to cut it completely? I will be honest, I wanted to cut ours out completely and that is VERY difficult. Your friends will want to go out to eat or you will be out running errands at lunch and need to grab a bite to eat. Something is bound to come up. It is good to reduce it but I don't think you can cut it completely.
Gifts- This may bot be a large amount but I am sure you have something you spend on gifts. I find that some months there won't be any gifts to buy but the next month there will be a wedding and a birthday (niece, nephew, parents, grandparents) . Or maybe it is mother's/father's day or Christmas. You will spend at least something so having a budget set up that you can roll over will be helpful.
Home maintenance- Are you going to do the gardening or hire out? If you do it do you own a lawn mower, trimmer, weed whacker, and all that other lawn stuff? If not, you will need to purchase and maintain them (we had to tune0up our lawn mower and it cost $100). What about paint and decorating items? What if an appliance breaks and needs to be replaced? Little things can add up really quickly when you are to homeowner and are responsible for every crack, plugged drain, and broken anything.
Vacations- I know this doesn't have to be a big expense. It certainly isn't for my family but it does cost something to have even a weekend camping once per year. Just think on this and be prepared.
Kids- Have any? Want any? Those things are pricey. I have 3 and while I know that you don't have to buy every little thing, you do still have to feed, clothe, and diaper them. You can get stuff used or hand-me-down but you will have expenses regardless. If you don't have them yet but want them eventualy, it is a good idea to save a little so you are prepared for the expenses (including maternity leave) that you may incur in the future.
Pets- Same as kids. If you have or want one you have to account for that in the budget. Medical co-pays- I don't budget for this because we have totally rockin' health insurance but a lot of people like to have a small savings to cover possible dr. appointments and prescriptions.
With all those in mind I still say absolutely no more than $1100 PITI. This will leave you $700 month plus any extras you may make for some of these other things, plus savings. You best bet it to look at your misc. spending over the last year and figure out what you really spent so you know how to properly allocate.
Sorry for writing a novel but some of these are things that Dh and I didn't consider when we first bought and it was hard to find ourselves coming up short each month. We are in a better place now but a lot of that has to do with becoming more aware of our expenses when we went to purchase a new home. Good luck.
It looks like you make close to me. Taxes and insurance will be different for everyone. My house was 115k and the payment with taxes and insurance is around $800. At the 25% rule I could have afforded a lot more but I want to be able to save and do repairs on the house easily. I also enjoy going out and I didn't want to change my lifestyle. It is comfortable for me. You need to remember you need a sizable savings every month for repairs. There is always something to fix!
I also want to point out to PLEASE remember the preapproval amount your bak gives you will often be higher than what you can truly afford.
Always know your budget and stay within your predetermined price range even if the bank says they can give you a loan for $100k more than you want to spend.
For example, DH and I knew we wanted (and could afford) a home with a sales price of no more than $320k (with 20% down and then a mortgage loan on the remainder). But our bank was willing to give us a mortgage for $500k. Had we done that...we'd be strapped for cash every month, and living off credit cards probably, which is not responsible or financially safe.
We try to live by the rule of living BELOW our means, in this way we can always have savings. Try to use the rule of spending only 30% of your combined after tax income on your mortgage. Another idea, if you find a property that has an extra room off to the side somewhere or a basement, you two could end up renting it out to help pay for the mortgage.
I cannot emphasize this rule enough, don't live within your means, live BELOW your means and try to put as much as you can aside into savings.