Before we go out and begin looking at homes, you need to be pre-approved… but before that I always recommend deciding how much you want to spend on a monthly mortgage payment.

1. Decide how much you want to spend MONTHLY on a mortgage

Getting pre-approved for $500,000 doesn’t always translate to the same amount you can comfortably afford monthly while maintaining your lifestyle.

Don’t focus solely on the purchase price or the highest price you can be approved for, but rather first start with your desired monthly

payment. This monthly payment should factor in your taxes and insurance (but not utilities and general monthly maintenance).

This Mortgage Rule of Thumb may seem backward but it’s the one and only way to make sure you get the home you want for the price you want.

That’s why it’s important to ask yourself what you’re truly comfortable spending on your monthly mortgage payment.  And — this is even more important — it’s okay if that amount is lower than what’s approved. In fact, that is how it should be!Most people get approved to buy a home at a price much higher than they want to spend.

Not sure how to come up with your desired monthly payment?  This is something we can talk about and I can help you with what you should consider when making that decision.  For example, you’ll want to include about 1% of the home’s purchase price per year for maintenance, tax savings you’ll get as a homeowner and your spending habits.

Every $10,000 change in your loan amount, whether that’s an increase or decrease in your price point or increasing or decreasing your down payment will only change your monthly payment by about $50-$80 per month.  

2. How much money do you want to put down?

Unless you have been approved for some first-time buyer programs, you will need to bring cash to close on your first home. Will this money be coming as a gift from a family member? Is it going to be taken out of your 401k? Don’t forget to factor in closing costs. (these are different for everyone, the number you google will not be accurate. We will need to get you connected with a loan officer to get an accurate number.)

Different loan programs require a different downpayment amount.

Currently in Utah along the Wasatch Front, downpayment requirements are:

Conventional loan: 3%

FHA loan: 3.5%

VA loan: 0%

USDA: 0%

3. How long will you be living in this home?

With how quickly homeowners are gaining equity in their home in Utah, a good rule of thumb is 2-5 years when trying to decide between renting vs. buying. That means, if you are going to live in this home for at least 2-5 years, you will come out financially ahead if you buy a home vs. renting a home.

You can afford 30% more in a mortgage versus your current rent without changing your lifestyle. To figure this out, multiply your current rent by 1.33 to get an affordable mortgage payment. For example, if you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 mortgage payment after factoring in the tax benefits of homeownership.

Mortgages are not one-size-fits-all. Make sure you go around to multiple loan officers and double check fees involved and if you are getting the best rate for you.