Part 1: The Monthly Payment
Let’s assume you have household gross income of around $100,000 per year, good credit, obligatory monthly debt payments below $250, and a fair amount of savings in the bank. This will qualify you for a mortgage with a monthly housing payment of around $2,400 using a conservative approach. This financial situation will not be appropriate for everyone, so please reference some of the available online mortgage calculators or speak with a mortgage professional to discuss your individual situation.
The $2,400 mortgage payment can be made up of a number of individual parts depending on the type of mortgage, the size of your down payment and whether or not you are buying a property with condo or home owner’s association fees.
Most monthly mortgage payments will include:
- Principal and Interest
- Real Estate Taxes
- Homeowners Insurance
- Mortgage Insurance (Traditionally required if you put down less than 20%, but there are exceptions)
- Condo/HOA Fees (Where applicable)
If $2,400 is your maximum housing payment, increases in any of the above monthly payment components without a decrease in another will reduce your buying power. A monthly condo fee of $150, for instance, will have a similar impact as a 1% increase in mortgage interest rates at this level of financing. This essentially reduces the amount you can afford by around $30,000. Variations is real estate taxes between neighboring municipalities can have a severe impact on how much you can afford. Too small of a down payment can also have a substantial impact on your monthly payment due to the potential addition of mortgage insurance, not to mention the additional interest payment resulting from financing more of the purchase.
Try not to think of condo fees and real estate taxes simply as barriers to home affordability. While there are plusses and minuses to condo and home owner associations, those fees tend to go towards maintenance items and services that a homeowner would traditionally be responsible for. Real estate taxes should have a direct link to the services and schools provided by a municipality; do your research and consider what you will have to pay for out of pocket when comparing the real estate taxes required in one municipality over another. Residents are often on the hook for things like their own trash and recycling collection in some Philadelphia suburbs.
While the monthly payment is important for evaluating the ongoing cost of financing your home purchase as it relates to your monthly income, the down payment, closing costs, escrows and reimbursements make up a sizable upfront investment that will require liquid assets. How much do you have in savings?
Please call or email me today if you are ready to get started, or read on for Part 2.
Cell: 215-520-7166 or Email: neil@realtorneil.com.