Buying a home is not a decision that should be made lightly. It is a serious long-term commitment – one that includes financial responsibilities. While you’ll find plenty of affordable and amazing choices in West Central Minnesota, it’s important to first find out just how much home you can comfortably afford.
Here are some useful tips to help you get started.
How much should I pay?
Repaying a mortgage on a house is going to take up a fairly sizeable percentage of your monthly income. This leads to the question of just how large a percentage of your income you should pay. The answer is actually more straightforward than you might think.
Since 1981, the government has been suggesting that 30% of your income should go to paying for your own home. To be even more precise, the Federal Housing Authority (FHA) puts this figure at 29%, or 41 % if you have no other debt. Anybody that is considered to be paying over these percentages is considered to be “cost-burdened”. Those paying over 50 percent are considered to be “severely cost-burdened”.
If you are cost-burdened, it means you are likely to struggle in paying your monthly bills, groceries, and other essential expenses. This can lead to some unwelcome trade-offs in your standard of living in order to be able to pay the mortgage. You might have to limit your nights out or compromise on food quality. You might not be able to send your kids to a good school, and you can probably forget about saving any money.
An Easy Calculation
Such a simple guide actually makes it quite easy to work out what you can afford to pay. Simply take your monthly annual income, take 29% (or 41% if you no debt) of that figure and you have your answer. Once you know what you can afford to pay monthly, you will then be able to find out how large a mortgage you should get.
Another similar guideline is the 28/36 rule. This means spending no more than 28% of your income on your house, and no more than 36% of your overall debt. Again, this is easily calculated by taking these percentages from your gross monthly income.
While these are useful guides, however, it is not an exact science. People do have different circumstances so these guides will not apply to everybody. For example, if you live in a large city that has high property prices then you may have no choice but to pay more.
Some people also live frugally as a matter of preference. If you need only minimal entertainment in your life and have no desire to spend your money on expensive vacations and nights out, you may be happy to pay more than 29%. The trade-off here is that you get a better home, which is just what many people want.
On the flip side, if you like to live a more extravagant lifestyle then you should consider paying less than 29%.
Some people might choose to spend considerably less than the 29% suggested in order to save for the future. A year or two of living in a small apartment with your partner and spending as little as you can on other bills could help you save a surprising amount. This can then be put toward your down payment, which can lead to lower monthly mortgage payments.
Location, Location, Location
As previously mentioned, some people will have no choice but to pay higher amounts due to very high property prices in certain locations. On the other hand, those living where the property is much more affordable may not need to spend 29% on their ideal home.
If you choose to live in a smaller community like Morris, MN, you’ll find a wide variety of relatively lower-priced housing options. The median home cost in Morris, as well as the overall cost of living, is less than the national and state averages. This means you’ll likely find excellent housing options in the area with a significantly lower price than in a bigger city.
Looking into Financing Options
The type of financing you get can also help you buy your dream home while staying within your budget. If you have not built enough savings to pay a sizeable down payment, you may opt for an FHA or a VHA (Veterans Housing Authority) loan, which requires low or even zero down payments.
You can also talk with lenders about a conventional mortgage with low down payments. However, you might need to work on getting a stellar credit score to qualify for such a loan.
For more tips on how to purchase a home and what to know when buying a house, check out this page.