Are you planning to purchase a home but aren’t sure what you should spend? In this video, we're going to talk about how to figure out the price of the next house you buy. We’ll break down your monthly mortgage payment to give you the bottom line on exactly what you can afford.

Your Monthly Payment

Buying a house is fun, but it's also emotional. Sometimes those emotional decisions can impact what you buy. It’s important to remember that when you purchase a home, you're also committing to a monthly mortgage payment.

When you’re looking at buying a specific property, the first thing that you should do is see if you can afford that monthly payment in the future, going forward. The best place to start is to learn the breakdown of every single cost that's associated with homeownership. Knowing all of this ahead of time is crucial in giving you the best idea of what's leaving your wallet every month.

Remember, though, that your mortgage payment is not the only cost associated with owning a home. You're going to have property insurance, taxes, property taxes, and even an HOA. So it's super important that you have all the facts before figuring out a sales price that fits your budget. Our advice is to figure out that monthly payment—including all the extras—and work it backward to figure out what your home purchase price should be.

Once you have a good idea of your numbers, you should know exactly where you should be shopping and what you can truly afford.

Breaking It Down

Let's figure out the breakdown on what that monthly payment is. The biggest cost, of course, is how much you pay the bank for your mortgage payment. If you're getting a loan on the property, your mortgage payment is going to consist of two things: principle and interest.

For example, let's say that your mortgage payment is $2,000 a month. That $2,000 a month is going to remain consistent over the life of the loan, but it’s made up of principal and interest. The bottom line doesn't change every month. What does change is the amount allocated towards the principal and the interest.

The next expense of being a homeowner is your property tax bill. To understand this cost, let's say that you get a mortgage for $400,000 and live in an area with a 1% property tax bill. 1% of $400,000 is $4,000. If your mortgage payment was $4,000 a year, over 12 months, you'd be paying $333.33 per month. This would be added to your mortgage payment per month. If you put 20% down or more, you have the option of paying that on your own. However, if you put down less than 20%, most lenders' guideline is that they want that monthly allocation added to your monthly payment.

The next expense you might have to pay in addition to your mortgage is any homeowners' association dues. Some homes are in neighborhoods with homeowners associations, and they have a cost. That cost is allocated per month or per quarter, but if you want to live in that neighborhood, you're paying for that HOA. Another expense you might incur is private mortgage insurance, or PMI. That happens when you don't put more than a 20% down payment on your home purchase. PMI is insurance that will be charged by your lender.

Knowing Your Numbers

These are all important parts of your monthly homeownership expense. It’s really important to get a clear idea of all the costs and what that's going to mean for your wallet. Knowing your bottom line is vital before you decide what price home you're going to buy. After all, the last thing you want to do is fall in love with a property and find out it's going to cost a lot more in monthly expenses than you anticipated.

If you have any other questions about how much to spend on a new home, please feel free to reach out. I would love to help answer any questions you have!