12 Sep Estimate How Much Mortgage You Can Afford
Interest rates are currently still very low, and that means a lot of people are trying to hurry and buy a house to keep the payments down. If that is your main motivation behind buying a house, you may want to reconsider the decision. But if you have been kicking around the idea already, then now might be a good time to dive a little deeper. Understanding how much house you can afford is the first step to making sure that you don’t get in over your head.
Use a Mortgage Calculator
Mortgage calculators are great for helping determine what the payments will be on your new home. All you have to do is plug in the cost of the house, the current interest rates, and the length of the loan, and you can get your monthly payments. Keep in mind that mortgage interest is tax deductible, so if you have a loan with 4% interest, it’s actually going to be closer to 3% after you write the amount off on your taxes.
Taxes and Insurance
Just figuring out the principal and interest payment is not enough. There are also taxes and insurance that will be owed each month. These are very easy to estimate, and if you live in Yellowstone County you can just hop onto the county’s website to find out the current taxes on the property. Insurance is as easy as calling up an insurance agent to get a quote.
Utilities and Maintenance
But principal, interest, taxes, and insurance (PITI) is not all you will have to pay for. There will also be ongoing utility fees (you can get an estimate of these from the current owner), and then those pesky maintenance fees. Keep in mind that you will likely want to keep a bit of a slush fund handy in case the water heater goes out, or you need major servicing on the dishwasher.
Determining how much of a house you can afford isn’t too hard to do. But keep in mind that the costs add up rather quickly, and just basing your estimate on the monthly repayment of the loan could leave you barely scraping by every month after all of the other bills are paid. But there is a way that you can afford the size and style of house you want.
As long as interest rates stay low, the way to afford your house is to simply mortgage less of the cost. Since you can’t negotiate the price as low as you probably would like, you must pay a larger down payment to get the financed portion down as low as possible.
Of course, to pay a larger down payment, you need more cash on hand. That can be accomplished in a few different ways. First, you could earn more money on the side; something that thousands of people across the country do. Or you could apply more of your tax refund to your down payment. Tax season is upon us, and after working with an accountant in Billings, Montana, you should be able to save that money toward your house.
Kevin T. King is a full service accounting firm in Billings, Montana. We have the expertise and the knowledge to get your taxes done quickly, and get you the largest refund possible. Throughout the year we provide business consulting services, nationwide online payroll services, and anything else accounting related that you could need.