Mortgages and Your Budget
Creating and more importantly, following a budget helps you actively work towards accomplishing your goals. Following a budget offers a cascade of benefits such as revealing waste in your spending habits, which in turn allows you to redirect priorities, and form new habits to support your efforts to reach your goals. For example, if after you reviewing your spending habits, you learn that you spend money on eating in restaurants, you can determine how you can lower your monthly spending in restaurants. This can then lead to new habits to redirect money from eating at restaurants to other areas, such as paying more into student loans. Taking control of your spending habits will keep you on track for anything you wish to achieve.
How Much Should I Budget for Mortgage?
A budget which accommodates a mortgage should be created to fit your specific situation, however the following budget breakdown is a good example of how to break up your income:
-student loans: 10-15%
While many experts recommend dedicating up to 30% of your monthly budget to mortgage, others suggest considering 25%. This is because your monthly housing payment can include fees other than your mortgage. Many homeowners need to pay HOA and Mello Roos fees in addition to their actual mortgage. Therefore, having a mortgage of 25% of their monthly income gives room for the HOA and Mello Roos fees. Another benefit of keeping your total housing payment under 25% is that you will be able to put more of your income into savings or to student loan payments. While 10-15% of your income reserved for student loans is good, you can pay off your student loans quicker if you contribute 20% of your monthly income.
How will a Mortgage Affect My Budget?
When purchasing a home, keep in mind not to borrow so much that you have no flexibility if life changes down the road. While you may be able to purchase more, if you purchase a home that is priced at the top of your budget, you may not have any flexibility in your monthly budget if unexpected situations, such as job loss, occur years later.
Budgets are not Static
It is important to remember that a budget is fluid and needs to be adjusted in order to accommodate situational, financial and seasonal changes. A couple of examples of seasonal changes that may lead to a reevaluation of the budget is that a garden needs to be watered more often in the summertime, which will raise your water bill. Meanwhile, in the winter you may need to spend more on heating your home. By reviewing your budget during the year, you will be better prepared for these changes.