How to Make Sure You Can Afford Your Mortgage Each Month
Your mortgage
Many home mortgages take 20 or 30 years to repay. That’s a long time to worry about how you’ll find the money to afford your home.
Don’t set yourself up for stress. Instead, follow these tips for keeping your monthly mortgage payment affordable.
Build a Budget
If you find yourself living paycheck to paycheck and wondering how you’ll make the next mortgage payment, you need a budget.
First, start with your major expenses, like your mortgage, car loan, monthly utility costs, and basic groceries.
Either set those necessary funds aside in a special bank account or pay the expenses before you spend any other money.
Once your big-ticket items are taken care of, you can splurge on eating out, retail therapy, or other non-essential purchases.
Buy the House You Need
One of the easiest ways to ensure you can pay your mortgage each month is to keep your mortgage payments small.
Don’t buy a five-bedroom house with a backyard pool if your household income is $50,000 a year.
While it’s tempting to purchase a fancy house, it’s better to start with something affordable and build equity.
You can always trade up for something nicer once your finances are more secure.
Home Equity Loans
A home equity loan can make homeownership realistic for some. A Home Equity Line of Credit (HELOC) lets you convert your home’s equity into cash.
Many homeowners use HELOCs to finance major renovations, college tuition, or the purchase of a new car.
You can also use a HELOC as an emergency source of cash; for example, if you lose your job, a HELOC might help you make your mortgage payments until you’re able to start working again.
The total amount you can borrow through a HELOC is based on your home’s value, your current equity, and your household income.
Tackle PMI
If you purchase your home with a down payment of less than 20 percent of the purchase price, you’ll have to pay extra on your mortgage each month.
This extra payment is called private mortgage insurance, or PMI. Your mortgage company makes you pay for PMI to cover the extra risk of lending to someone without a standard down payment.
Once you’ve built your equity to at least 20 percent of the home’s appraised value, you’ll no longer have to pay PMI.
Don’t risk foreclosure. Create a plan to meet your mortgage obligation every month.
Category: Mortgage
