How Much of My Paycheck Should I Spend on My Mortgage?
Buying a home is exciting. But before you get caught up in it be sure to know how much should you spend each month on your mortgage? Depending on who you ask, you’ll hear estimates from 25 percent to 35 percent of your income, and you may be approved for a loan that exceeds those numbers. Online mortgage calculators are a great place to start, but they don't tell your whole story.
You probably want as much house as you can afford, with all the bells and whistles and a sweet deck. But you don’t want your monthly payments to be so high that you don't have anything left over to buy a grill for that deck. How much can you really afford? You’re the person most qualified to answer.
After you’re pre-approved for a mortgage, but before you find a home, take a look at your current budget. How much are you spending on things that are fun? Fun means something different to everyone. If you recharge by traveling with your league tennis team to weekend tournaments, make sure you can still afford it.
Your parents are right, there are definitely some frivolous things to cut from your budget. But if your fancy takeout latte puts a smile on your face and makes your whole day more productive, it may be more necessary than you think. (We can’t have you slacking at work now that you have a house to pay for!)
If it's your first home, you may also want to have some cash set aside to furnish it. Your college-era futon might start to look a little shabby now you're a homeowner. Grills aren’t free, and neither are the tools to go with them. Look for room in your budget to buy things that will make you feel at home in your new place.
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Compare your new mortgage payment to your current rent and see how much wiggle room you have. If they’re similar, and you’re already comfortable, you may not need to give this any more thought.
Pro Tip: In some cases, a mortgage payment is less than rent. If that’s true for you, don’t start spending more. Commit to putting the extra in a savings account for unexpected home repairs. The first time a pipe bursts, or your oven quits in the middle of cooking a roast, you'll be glad you did.
Owning a home is a lot of fun, and you'll be tempted to max out your budget when you buy. But picture yourself house-poor, sitting in an empty living room, unable to invite anyone over to see your great place, because your monthly payment doesn't leave anything left over at the end of the month.
Now that you're a homeowner, you may start spending less on extras, but you won't want to forgo all the fun. Just get ready to have cheaper fun. How much does your fun cost? And how much fun do you need to be happy?