Have you ever wondered if you should rent or buy a home for yourself and…
Your mortgage will include taxes and insurance
Taxes and insurance can differ from state, county, and even city. They can also be a significant part of the payment. An online mortgage calculator will give you an idea of payment, but a local mortgage lender is going to be able to give you the most accurate total payment. But there are some things you can do to get a rough idea of how much you can afford.
I am a local mortgage broker serving Omaha, Papillion, Bellevue, La Vista, and all of eastern Nebraska. If you need help finding a local realtor or qualifying for a home loan please contact me.
What are your consumer debts?
For mortgage qualifying purposes, we will look at your new mortgage payment and all debts showing on your credit report. This will include auto loans, installment loans, student loans, and credit cards. We will also count any child support or alimony you pay. Things like utilities, insurance, and monthly subscriptions (Netflix, Disney+, etc) will not be counted, but you should consider all of your debts to make sure you will be financially stable after the purchase.
Your credit score will also affect how much you can afford
The better your credit score the lower your interest rate and the lower your Mortgage Insurance premium. A lower rate obviously lowers your payment and will increase the max amount you can afford. Mortgage Insurance is also based on credit scores and is lower with higher credit scores. If you speak with a mortgage loan officer early enough in the home buying process, they can recommend easy ways to increase your scores and increase how much you can afford. For full credit analysis, contact us.
Nebraska taxes and insurance affect affordability
Your mortgage payment is not just the payment on your mortgage. The yearly taxes and insurance will be divided by 12 and added to your monthly mortgage payment. Because taxes and insurance can be different from house to house even if the houses are the same sales price, this is a bit of an unknown. A good mortgage loan officer will be able to make decent estimates. It is important to remember that Nebraska has taxes that are much higher than the national average. Nebraska, due to hail storms, has higher than average homeowner’s insurance. These two items can increase your total monthly payment quite a bit. This is why it is important to ask “How much mortgage can I afford in Nebraska?” But again taxes and insurance change not just from state to state, but by county, city, and even house to house.
So what mortgage can you afford in Nebraska?
Now let’s get to the math. There are several loan programs that all have different debt-to-income requirements. As a rule, keep your payment at 35% of your gross income (before taxes) and your total debts (new house payment and the monthly payments on all debts on your credit report) at 45% of your gross income. There are other factors that can increase or decrease these percentages, but it is a good place to start.
If you are making $60,000 a year, or $5,000 a month, in income, you should keep your total house payment (mortgage, taxes, and insurance) around $1,750 and your total debt payments at $2500.
What you are approved for and what you can afford can be different
People are a bit shocked when they find out how much mortgage they qualify for. What I can approve you for might be a lot more than you think you can afford in your personal life. Make sure to consider when buying a home that you will not just have a mortgage payment. You will have extra and often higher utilities than renting and you will have maintenance on the home. We are happy to do an analysis of all of your debt obligations to help you get an idea of what you can afford, but ultimately it is up to you and your family to determine what payment you are comfortable with.
What To Do Next
Other useful links
- How to improve your credit
- The 20% down rule on conventional
- What is Escrow?
- How is income calculated?
- Why your assets matter
- Mortgage Calculator
- Is Credit Karma accurate?
- FHA vs Conventional, which is better?