A mortgage is typically one of the biggest monthly payments and financial responsibilities that a person is responsible for. Mortgage payments usually impact the person’s budget significantly for several decades or longer.
While there are mortgage calculators online that can be used to estimate an affordable mortgage payment, it is important to start with a basic budget. A budget will allow you to more accurately determine how large of a mortgage payment is truly affordable before applying for a new mortgage.
List Income From All Sources
The first step to take to prepare a budget is to list all sources of income that is received regularly. This may include regular paychecks from both spouses, dividends, annuities, and any other sources of income that the individual or the family receives on a regular basis. Most budgets are prepared on a monthly basis, so ensure that the total amount of take-home income for a typical month is included in the budget.
List Recurring Expenses
Create a list of all expenses for the month to complete the next step in the budget-making process, and this should include utilities, minimum credit card payments, car loans, monthly food and gas expenses, and more. Ideally, it will include an allotment for savings, home maintenance expenses, and other expenses that the individual or the family may have. The more accurate the list of expenses is for the budget, the easier it will be to estimate a new mortgage payment amount that is actually affordable.
Think About Irregular Income and Expenses
It is important to think about irregular sources of income and irregular expenses. This may include seasonal income from a part-time or temporary job that is expected to continue into the future, as well as quarterly payments for homeowners’ insurance or annual property insurance premiums. While these are not monthly income sources or expenses, they nonetheless should be accounted for.
When a person takes on a larger mortgage payment than the budget allows for, it can quickly become unaffordable for the individual to continue to pay over time. A high mortgage payment also increases the risk of a default in the event of unforeseeable circumstances.
It is best to set up a monthly mortgage payment that is affordable for the individual’s or family’s budget, and these steps provide basic guidance for establishing a budget. A trusted mortgage professional can assist with setting up a mortgage payment that is affordable based on the budget that is created.