Mortgages: Calculating A Realistic Budget

There's no point in buying a huge, fancy house if you can't afford it

. Mortgage budgets are an integral part of buying a home, and you need to be as realistic - and conservative - as possible when calculating yours.

Determine Your Income -

The first step in determining a realistic mortgage budget is calculating your monthly income. If you are buying a home with your spouse, calculate the income that the two of you bring in each month, minus taxes. If necessary, go through old pay slips and other records to get a realistic number. Then add in any income you may receive via investments and other things. At the end, you should have a number that realistically reflects your average monthly income. Remember that if you have to estimate at all, do so conservatively - i.e., estimate on the low end, or round down.

Figure Out Your Monthly Expenditures -

Determining income is relatively easy; figuring out monthly expenditures is a bit more tricky. The best thing to do is to track every penny you spend over the course of two or three months. Simply plugging those numbers into a spreadsheet will help a lot. Remember that in addition to major bills - car payments, insurance, utilities, etc. - you are also regularly spending money on smaller things that add up quickly. Be sure to include any money spent not only on groceries, but on dining out. In this case, it's better to round up and err on the side of caution in order to arrive at a truly realistic monthly expenditure total.

Calculate Budget and Determine How Much You Can Afford To Borrow -

After you have calculated your your monthly income and all of your expenses, simply subtract the expenses away from the income. That number will be the ballpark amount that you can afford to spend on a mortgage payment each month. If it looks suspiciously high, though, you might want to go over your calculations one more time. Remember that it's vastly preferable to be in a smaller, more affordable house than a larger one that breaks the bank every month. Living within your means is critical, and a good mortgage broker can help you arrive at a budget that will be manageable and reasonable so that you can comfortably own a home.

by: Eva Judge

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