Whether you are shopping in Santa Fe, Española, Los Alamos or elsewhere in Northern New Mexico, buying a home can be an exciting time in your life. Since it is usually the biggest purchase in your life, buying a home usually comes with stress. When you try to figure out how much you can afford to pay on your New Mexico mortgage, things can get confusing and overwhelming. Fortunately, there are resources you can use to determine how much you can afford to spend on a home.
Calculating Your Budget
While many resources suggest your mortgage payment be at or less than 28% of your monthly income, some experts suggest taking it down to 25%. Not only will this give you a more affordable amount to aim for, but it makes the math easier as well.
Here’s an example:
- Total your income. If your take-home pay is $3,000 per month and your partner’s take-home pay is also $3,000, your total gross household income is $6,000.
- Figure out 25%. To figure out 25% of your total household income, you’ll multiply the two. Using our example, 25% x $6,000 is $1,500. That would be the amount you could theoretically afford to pay on a mortgage each month.
- Determine your budget. Speaking with a loan officer at Del Norte Credit Union will help you with this step. Using a mortgage calculator they can assist you in determining your budget based on how much you can afford to spend each month.
The size of your down payment, how long you plan to keep the house, and the monthly payment you can afford all matter. Sticking with our $6,000 monthly income example, assume you’ll opt for a 30-year mortgage with a fixed rate at 5%. With a home price of $250,000 and a 10% down payment ($25,000), your estimated payment with insurance and property taxes is $1,465. That fits in your payment budget. With a higher down payment of 20% ($50,000) for the same $250,000 home, your monthly mortgage payment would be about $1331 with taxes and insurance.
Keep in mind that home ownership in northern New Mexico comes with property tax and insurance costs. You may also have to pay HOA fees and maintenance costs. Therefore, if you do not currently have these items in your budget, consider adding them to see what that would leave you with if you purchased a home at a certain price.
Understand the Loan Details
Doing the math and figuring out a ballpark amount is an exciting first step, but there are a lot of other details you will need to understand. Several factors come into play, aside from just your total household income.
- Debt-to-income ratio. In most cases, your debt-to-income ratio should sit at 36% or lower. This is considering your pre-tax income and includes debts such as car loans, your mortgage, student loans, etc.
- Interest rate. With the housing market, interest rates rise and drop all the time. Ask about getting your rate locked in when you’re ready to buy. The rate at closing is what you’ll end up with for the duration of the loan.
- Pre-qualification. Your lender will request your income, debt and monthly payments. When you qualify, your lender can issue a pre-qualification letter. But keep in mind that you know your expenses better than anyone else. Make sure you allow for your food budget, school fees for your kids, and any other expenses that don’t show up in the mortgage application.
You should also keep your long-term savings plan in mind. DNCU mortgage professionals can help you understand not only the mortgage expenses but also all the associated expenses you may encounter as a new homeowner. Do you have questions about these mortgage terms? Would you like to sit down with a friendly mortgage expert?
Applying for your Mortgage Loan
Doing the math and trying to understand the nitty-gritty details on your own are great steps to take, but when it comes down to your New Mexico mortgage, it is best to get in touch with the professionals at Del Norte Credit Union. We understand Northern New Mexico and have years of experience in real estate lending. We can help you determine how much you can afford when it comes to purchasing your forever home. Are you ready to apply for your dream home? Submit a mortgage application online today!