How Much should your Mortgage Payments be?

So you want to know how much a typical mortgage payment should be? If that’s what occupies your thoughts these days, then you’re in great company. With mortgage rates at close to record lows and a robust housing market across the country people are looking towards home ownership despite beliefs about the economy cooling off. And rightfully so. During the first quarter of 2016, the price of a home in 87% or metropolitan markets continued to climb according to the National Realtors Association. Since the housing bubble burst in 2008 many housing prices in multiple markets have recovered either most or all of their value in the past 8 years. Back again are the bidding wars for the best homes for sale in Las Sendas, which in turn increases the pressure on buyers to spend more. But we’re talking about what you can afford. And that number is based on how much you’re able to borrow and how much money you can put down and making every attempt to stay on budget. As your Arizona realtors we are going to review a couple of really smart moves to determine what you can spend. This way you can go into the process knowing exactly how much you have to spend without overextending yourself in the process.

how much should mortgage payments be

So let’s get started. The first step is self explanatory, and that is to determine exactly how much you can afford to borrow. A basic rule of thumb in this process is known as the 28/36 rule. That is to say that your monthly costs, which include housing, mortgage payments, property taxes, insurance and any associated fees, should not exceed 28% of your monthly gross income. As far as monthly debt payments are concerned, and these include student loans or credit cards, it is advised that you do not go over 36% or your monthly gross income. It’s relatively simple to put this into action. You can go online to a vast amount of mortgage calculators which are designed to help you figure out just how much you’re able to afford borrowing and what kind of monthly mortgage payment you can take on. Right now, as a matter of fact, the average cost of a 30 year fixed mortgage is at 3.62%. Take into account that this is near its lowest point since 2013 when it was placed at 3.52%. This is just the average cost of financing a home. Experienced borrowers with good credit can usually negotiate this down to a quarter or half point less. Your local East Mesa Arizona realtor can help give you information pertaining to the property taxes and insurance costs you can expect so that you can factor it into how much you’re able to borrow.

Figure out how much you can put towards a down payment. The general rule is that the more you can put down, the bigger the house gets. If you’re like most potential buyers then your down payment is going to come from two sources. First there is savings and second there is the equity built up on the current home. And, equity is the current value of your home minus how much you owe on your mortgage. In a perfect world you would want to aim for a down payment of around 20% in order to get around having to pay mortgage insurance. If that’s not in your range, don’t worry. Many borrowers are able to qualify for mortgages with as little as 3% down with a credit score as low as 640. If you find yourself struggling to qualify for a loan then you could always go with an FHA loan, or a government backed loan. This would require a 3.5% down payment. Or there is the VA loan which sometimes doesn’t require a down payment.

Be wary of removing funds from a retirement account in order to cover a down payment. This is not the ideal situation when buying a home. But it is a fact that many Arizona families have most, sometimes all, of their savings in an IRA (individual retirement account) or 401k. If you find yourself in this position it is advised to pull from a Roth IRA or Roth 401k plan before any other. mortgage payments The reason being is that contributions to Roth plans are already fully taxed before they are created, and you can take money out without having to suffer penalties. Then there is the traditional IRA which would let you take out up to $10,000 to buy or remodel a first home and allow you to not pay any penalties. Keep in mind that as a result of these accounts being tax deductible you will be required to pay income tax on withdrawals and penalties for withdrawals over the $10,000 mark. You can borrow more from your 401k and have around 15 years to pay back the loan to your employer.

Be smart, and consult with the experts here at Coldwell Banker Trails and Paths when you decide it’s time to buy a new home. There’s a lot to know and you’re going to want an experienced Arizona realtor to help you navigate the homes for sale in Arizona. Contact us today and we’ll be more than happy to talk with you and answer any questions you might have.

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Coldwell Banker Trails and Paths
2913 N Power Rd. Suite 101
Mesa, AZ 85215

Office: (480) 355-4700

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