How to Choose a Mortgage You Can Afford
While buying a house there are various things to be considered along with the facilities provided in it and its location. The main thing to be considered is its price. Though buying a large mortgage with al amenities can be tempting for you but it cannot be a good financial idea if you cannot afford it. Then the question arises, how to choose an affordable mortgage? Some tips are provided here under which can help you in choosing a mortgage which you can afford.
Try hard to be mortgage free
It is believed that everyone wants to own debt free homes. You can make it possible only by living within your means and using your excessive money for paying off the mortgage. For this reason you are advised not to go for an unaffordable mortgage. Normally it is advised that your monthly mortgage payment should not exceed 25% of the pay you take home. In this way you may not get the home of your dreams in your lifetime.
Calculating the mortgage you can afford
You can keep the cost of the home of your dreams along with allied expenses within your affordable limits by following the method given here under.
Suppose your monthly take-home income is $10,000 then your monthly mortgage payment including interest, principal, insurance and taxes should not exceed $2,500 as per the norm stated above. Now you can calculate the mortgage you can afford by knowing how much you can pay every month for it. Now suppose you can afford to pay $2,000 against mortgage every month which comes to be $24,000 annually. On basis of that much annual mortgage payment your initial mortgage can be $270,000. It means you can buy a home that may cost you $337,500 in all, if you make 20% down payment.
Another way to calculate the mortgage you can afford
Normally it is recommended that one should not buy a home the value of which exceeds than double or two and a half time the total annual income of the family. Suppose the total annual income of your family including you and your spouse is $125,000 then you can afford to buy a home with $250,000 or at the most $312,500 as its total cost.
Other things to be considered
The extent of mortgage you should get: It is usually recommended not to take mortgage more than 50-80% of the total value of the house. You must make 20%down payment at least while buying a house.
Duration of the mortgage: You should take a fixed rate mortgage for 15 years but try to pay it out as soon as possible. In fact 15 years is a very reasonable term in which usually the mortgage is paid out easily. But you should never retire with a mortgage. You have to be mortgage –free before retirement even if you have to make some extra payment for it.
Thus by following the tips provided in this write-up you can easily choose a mortgage you can afford. Though it may not be the home of your dreams but always try not to buy a mortgage which you cannot afford.