One of the first pieces of information I want to know from a potential borrower is what they consider a comfortable payment. We all want to be comfortable with our mortgage payment. No one wants the pressure of never being able to go to a movie, take a vacation, or attend a sporting event because the house payment is so high you can't do anything but pay for the house.
What constitutes a comfortable house payment depends on the person. Many people consider what they are paying in rent the sweet spot of their comfort zone. Some feel their rent is too high and they can do better buying, which is often the case. While lenders do look at rent VS the proposed house payment to be sure the buyer won't experience "payment shock" with a payment that is significantly higher than what they are used to paying, this isn't the only factor that determines an acceptable payment from the lending perspective.
The lender wants to look at the total consumer debt picture. What do your credit cards cost you every month? How about other loans? Typically your minimum payments on consumer credit debt (credit cards, car payment, student loans, and any other installment debt) is added to the house payment. A rule of thumb is that this total debt can't be more than about 43% of your gross monthly income and about 33% of that amount can go to housing. For some people the payment allowed by the lender is too much. That' fine, no one is going to force you to buy more than you feel you can afford. In more than a few cases your rent may exceed the ratios that I have outlined here so you might feel you can take on a higher payment than what the lender will allow you. The argument that you are paying all your bills now, so there is no reason you can't do the same with a house payment doesn't go far with the investor. Houses have other issues that attach to them that rental properties don't such as repairs, taxes, home owner's association dues etc. I don't see much of that these days, but every once in while someone's eyes are bigger than their stomach-or in this case I would have to say bank account.
Assuming your rent payment falls into acceptable debt ratios, it is a good starting point-unless of course you think your rent is too high. In either case, we calculate your price range-i.e what the lender will allow you to buy. It is up to you to choose what priced house you are going to buy as long as you stay in the range.
Taxes and the cost of insurance also affect the payment. If you are a regular reader of this blog you know that in Indiana taxes are paid a year in arrears and that you receive credits that reduce the property taxes for having a mortgage and living in a property. In the case of a home that is not occupied, it is very likely that the discount for living in the home (which is a large amount-$45,000) may have fallen off the property. What that means is due to paying the taxes in arrears, you will have much higher taxes the first year. That increase in the payment might be enough to put you off of a specific property.
In order to avoid an ugly surprise with your house payment I always suggest that you have me figure the house payment prior to writing an offer. Maybe even choose a few homes that you are getting ready to tour with your agent so you have an idea of what the payment could be.
"The Scream" Edvard Munch
For many people taking on a mortgage payment that is higher than their monthly rent payment is realistic. But it is also important to take a look at how you spend your money. If you spend money every month on eating out, movies, and shopping for items that are desirable but perhaps not necessary making out a budget is a good idea. What of those discretionary items would you be willing to give up or limit to make a house payment? How much of your income goes to what is necessary as opposed to what is nice. While none of us cares to give up all our extras, sometimes we spend a surprising amount of money on what seem to be small purchases that have a significant impact over time. For instance, do you stop by Starbucks every day? That $5.00 latte costs you $1825 over the course of a year. Divide that by 12 and you get $152 per month more dollars towards a house payment.
womansday.com
I know- like Starbucks too...maybe carry your lunch to work more often-cut down on non essential services. Either way, it puts more money into the budget.
In any event, those of us who work at Tippecanoe Mortgage want you to feel good about your house payment. Buying a home is an important event. It is an item that can't be exchanged or returned easily. It is important that you feel good about your payment.
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