Getting preapproved for a mortgage is an exciting step in the homebuying process. It gives you an idea of how much you may be able to borrow and can help you begin searching for homes within an appropriate price range.
How much do you actually feel comfortable spending each month?
Those two numbers aren't always the same.
A lender may determine that you qualify for a certain loan amount based on your income, debts, credit, available funds, loan program, and other financial information.
But qualifying for a mortgage doesn't automatically mean you'll be comfortable making the maximum payment every month.
That's why it's helpful to establish your comfortable monthly housing budget before you fall in love with a particular house.
Your Mortgage Payment Is More Than the House Price
It's easy to look at the price of a home and focus primarily on principal and interest.
But your total monthly housing expense may include several components.
Depending on your particular property and financing, these can include:
• Principal and interest
• Property taxes
• Homeowners insurance
• Mortgage insurance
• Homeowners association (HOA) dues
• Other costs associated with the property or loan
Two homes with the same purchase price can therefore have different monthly costs.
That's one reason I encourage buyers to pay attention to the estimated total monthly payment, not just the asking price.
Preapproved Doesn't Have to Mean “Spend This Much”
Suppose you're preapproved to purchase a home up to $400,000.
That's useful information—but it doesn't automatically mean your home search needs to go all the way to $400,000.
Think about everything else your monthly income needs to support.
Maybe you enjoy traveling. Maybe you're paying for childcare or helping a child through college. Perhaps you're aggressively saving for retirement, paying down other debt, building an emergency fund, or simply prefer having more breathing room in your budget.
Those priorities matter.
Your lender determines what you may qualify to borrow.
You decide what feels comfortable for your life.
Start With the Monthly Payment
Instead of beginning with:
“What's the most expensive house I can qualify for?”
consider starting with:
“What monthly housing payment would I feel comfortable making?”
Then work backward with your lender to understand approximately what home price and loan structure could correspond with that payment.
This can also help keep your home search realistic.
There's little benefit in spending weeks looking at homes at the top of your approval range if you've already decided that the resulting monthly payment would make you uncomfortable.
Don't Forget the Costs of Owning the Home
Your mortgage payment isn't the only expense you'll have after buying a house.
Homes require maintenance. Appliances eventually need replacing. HVAC systems need servicing. Plumbing problems happen. Roofs don't last forever. And sometimes a Saturday morning becomes a trip to the home-improvement store that wasn't exactly on the weekend agenda. 😊
That doesn't mean homeownership should feel intimidating. It simply means it's wise to think about the costs of owning the home after you've purchased it.
When you're deciding what monthly payment feels comfortable, consider whether your budget also leaves room for routine maintenance, unexpected repairs, and the other expenses that come with homeownership.
A little breathing room in your budget can make those expenses much easier to handle when they eventually occur.
What About Interest Rates?
Interest rates can have a significant effect on the monthly principal-and-interest portion of your mortgage payment.
That means the home price that produces a comfortable payment at one interest rate may produce a very different payment at another rate.
Rather than relying on an old rule of thumb—or the interest rate a friend or family member received—ask your lender to show you estimated payments based on current loan options and your individual financial situation.
Even a change in interest rate can affect the monthly payment and the overall cost of borrowing, so it's important to understand the numbers you're being quoted.
The Consumer Financial Protection Bureau provides a helpful tool that lets buyers explore how different mortgage interest rates can affect borrowing costs.
Remember, online tools can help you understand different scenarios, but your lender can provide estimates based on your actual financial information, loan program, and current options.
A Simple Exercise Before You Start Shopping
Before you become emotionally attached to a house, take a few minutes to think through three important questions:
1. What monthly housing payment feels comfortable?
Think about your current expenses and the lifestyle you want to maintain after buying the home. What payment would allow you to take care of your housing expenses while still having room for the other things that matter to you?
2. How much money do you want to have available after closing?
Buying a house doesn't make life's other expenses disappear. Think about how much savings or financial cushion you'd feel comfortable having once your down payment, closing costs, and other homebuying expenses have been paid.
3. What would happen if an unexpected expense came up?
You don't have to predict everything that could happen. The goal is simply to consider whether your proposed housing payment leaves you some financial flexibility if the car needs a repair, an appliance stops working, or another unexpected expense shows up.
Then take those numbers and questions to your lender.
Your lender can help you understand how your preferred monthly payment may translate into a purchase price based on your financing options.
Your Comfortable Number Is Personal
There isn't one home price or monthly payment that's right for everyone.
Two buyers with similar incomes can have completely different debts, savings, family expenses, financial goals, and comfort levels.
That's why your goal doesn't have to be buying the most expensive home you're approved to purchase.
The goal is to find a home that meets your needs and a monthly payment you can feel comfortable living with after closing day.
Your lender can help you understand what you qualify for and explain your financing options. Your job is to think about how those numbers fit into the rest of your life.
Ready to Start Exploring Homes?
If you're thinking about buying a home in Greenville, Winterville, Ayden, Farmville, Grimesland, or elsewhere in Pitt County, you can start exploring homes whenever you're ready.
Use the home search at the top of this page to see what's currently available throughout Pitt County.
Not sure exactly what you're looking for yet? That's okay, too.
If you'd like some help narrowing down your search, reach out and tell me a little about what you're hoping to find. I'll be happy to help you think through your home search and answer questions as you prepare.
Denise Davis, REALTOR®
Fresh Start Realty
Serving Greenville & Pitt County, North Carolina