That was the average mortgage amount in May. Can you swing it?
It is a difficult time when looking to buy a home. Not only are inventories extremely tight, but home prices have skyrocketed over the past year as low mortgage rates have pushed up buyer demand.
In fact, the average mortgage loan signed in May was $ 384,000, according to the Mortgage Bankers Association. This is a significant increase from the average home loan amount of $ 377,434 in April, and it is also the fourth consecutive month that mortgage values have increased.
6 simple tips to get a 1.75% mortgage rate
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How Much Mortgage Payment Can You Afford?
You will often hear it said that it is a good idea to keep your housing costs at 30% or less of your take home pay. There are exceptions, of course. In some parts of the country, this 30% threshold may not be possible due to perpetually inflated house prices. And in some cities, not needing a car can allow more room to maneuver in housing.
But for the most part, you should aim to keep your housing costs at no more than 30% of your salary. And to be clear, that doesn’t mean your mortgage payment alone can eat up 30% of your paycheck.
Your mortgage payment, which is made up of the principal and interest on your loan, is only a portion of what you’ll spend each month on owning a home. You will also need to cover the costs of:
- Property taxes
- Home insurance
- Private mortgage insurance, if you don’t make a 20% down payment and have a conventional loan
- Homeowners Association Fee (HOA), if you buy from an HOA that charges dues
As such, when thinking about that 30% threshold, make sure you factor in all of the above as well as your loan’s principal and interest.
Plan ahead and spend wisely
Now back to today’s real estate market. Because home values are so inflated, you might find that a neighborhood that you would normally be able to afford is now a huge financial strain. And if so, you may need to be prepared to buy a home elsewhere, or put your home search on hold until more listings hit the market.
If you spend too much money on housing, you risk falling behind not only on your mortgage itself, but on your bills in general. If this happens, you could end up ruining your credit and racking up a big pile of debt.
To make sure you don’t break the bank on housing costs, use a mortgage calculator to see what your monthly payments will look like based on the homes you are considering and the funds you have available for a down payment. And then make sure you stick to that 30% rule.
While mortgage debt is generally considered a healthy type of debt, since it eventually allows you to own an asset that can grow in value over time, too high mortgage debt is anything but healthy.
Across the country, borrowers are taking on higher and higher mortgages so they can buy homes in today’s market. But if you think a $ 384,000 mortgage, or something in that neighborhood, is uncomfortable for you, you need to either change gears when it comes to your home search or put your purchase plans on hold. ‘that house prices go down.