Setting a Budget: Work Backwards from Your Monthly Payment

By Amanda Bailey
5 min read

Setting a Budget: Work Backwards from Your Monthly Payment

Whether you’re a first-time home buyer or a 7th generation rancher who owns a third of Montana (Someone just binge-watched Yellowstone.), setting a budget for your mortgage is crucial. It’s not just about understanding your total loan amount but how much you can afford to pay each month. 

Mortgage rates in Georgia can vary like the Savannah tides, and understanding them can help you make informed decisions about your budget and mortgage options. There are many resources available, like this mortgage calculator Georgia residents use, to get a better idea of your costs. For a detailed guide on mortgage rates, check out this comprehensive homebuyer’s guide to mortgage rates in Georgia.

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How Much House Can You Afford?

What is Your Current Housing Expense?

Start by evaluating your current housing expenses. It’s time to start digging up those old Home Depot receipts, because knowing how much you’re currently spending on housing can help you determine what you can comfortably afford in your new home. Consider all aspects of your current expenses, including rent, utilities, and maintenance costs. Factor in any regular expenses related to upkeep. We’re talking lawn care from the neighbor’s kid, the ever-so-lovely HOA fees, or pest control services. 

By viewing your current housing expenses, you can set a realistic goal for your new home budget. Look at your spending patterns over the past year to account for seasonal variations in expenses. For instance, heating costs for that rare Georgian blizzard or air conditioning in the not-so-rare Georgia heatwave can significantly impact your monthly budget.

How Much Available Cash Do You Have for a Down Payment and Other Costs?

The amount of cash you have available for a down payment and other costs can influence your budget. A larger down payment can reduce your monthly mortgage payments and help you avoid private mortgage insurance (PMI), which is required for down payments under 20%. Having more cash on hand can cover closing costs, moving expenses, eating cheese pizza from Costco, and any immediate repairs or upgrades needed in your new home. 

It’s crucial to consider all these factors and not just the down payment itself. Some loans offer down payment assistance programs that can help you if your cash reserves are on the lighter side. Planning for these expenses can prevent financial surprises down the road and help ensure a smoother transition into homeownership.

How Much Can You Realistically Afford to Pay Each Month?

To set a realistic budget, work backward from a monthly payment that you can think of without the cold sweats. Using our mortgage calculator, Georgia home buyers can estimate monthly payments based on different loan amounts, interest rates, and loan terms. This will help you understand how different variables affect your monthly budget. Also, consider your other monthly expenses, such as car payments, student loans, and rare single-barrel bourbons. Make sure to leave some buffer for unexpected expenses and savings. 

By thoroughly analyzing your monthly financial picture, you can ensure that your mortgage payments are sustainable for the long haul. It’s also advisable to follow the 28/36 rule, which suggests that your housing expenses should not exceed 28% of your gross monthly income, and your total debt payments should not exceed 36%.

Which Loans Do You Qualify For?

Different loans have different qualifications and terms. Understanding which loans you qualify for can help you set a more accurate budget.

Interest Rates Influence Monthly Payments

The interest rate on your mortgage has a significant impact on your monthly payments. Lower interest rates mean lower monthly payments, so shop around for the best rates.

Length of Loan Influences Monthly Payments

The length of your loan also affects your monthly payments. While a 30-year mortgage will have lower monthly payments, a 15-year mortgage could save you money on interest in the long run, but comes with higher monthly payments.

Will You Have Additional Monthly Expenses?

When setting your budget, account for additional monthly expenses that come with homeownership.

HOA Fees

If you’re buying a home in a community with a Homeowners Association (HOA), you’ll need to pay monthly HOA fees. Like HOA’s themselves, fees can vary widely depending on the community and how many amenities are offered.

Insurance Escrow Payment

Your lender may require you to set up an escrow account to cover homeowners insurance. This will add to your monthly expenses.

Property Tax Escrow Payment

Property taxes are often included in your monthly mortgage payment through an escrow account. Property taxes vary by location, so estimate these costs based on the area you’re considering.

Private Mortgage Insurance (PMI)

If your down payment is less than 20%, you’ll likely need to pay for PMI, which protects the lender in case you default on your loan. PMI can add a significant amount to your monthly mortgage payment.

Put It All Together

When you consider all these factors, you can get a clearer picture of what you can afford. A higher down payment and lower interest rate can significantly reduce your monthly payment. A shorter loan term, while increasing monthly payments, can save you a considerable amount of money in the long term.

To get a comprehensive understanding of your mortgage options, use the Pick Your Rate tool. This tool helps you see how different interest rates and loan terms affect your monthly payments. Moreira Team offers a pre-approval guarantee good for 90 days, giving you a leg up in the home buying process. You can thank us later.

Key Takeaways

Evaluate Your Current Housing Expense: Always try to understand what you’re currently spending on housing to help set a realistic budget.

Determine Your Available Cash for Down Payment: A larger down payment can lower your monthly payments and help avoid PMI.

Assess Monthly Payment Affordability: By using our mortgage calculator Georgia residents can estimate monthly payments.

Understand Loan Qualifications and Terms: Should go without saying, different loans have different terms that affect your monthly payments.

Account for Additional Expenses: Don’t forget HOA fees, insurance, property taxes, and PMI when setting your budget.

Utilize Tools and Resources: Use the Pick Your Rate tool to understand how different rates and terms impact your budget.

Let’s Start from the Beginning

When diving into the home-buying adventure, many folks kick things off by getting a pre-approval from a lender. This step is like a reality check, where the lender gives you a ballpark figure of the maximum loan amount you can likely handle. It’s easy to let this number set the stage for your budget, but remember, it’s just an estimate – and your actual budget should consider a lot more.Ready to take the next step in your home buying journey?

Learn how the Moreira Team can help you with your mortgage needs. By using our mortgage calculator Georgia residents can get started and find out what you can afford today. Say hello to an easier way to budget, say hello to an easier mortgage.