In August 2019, the average home sold for around $404,000.
If you’re thinking about buying a new home, plan to spend a pretty penny to get the home of your dreams. But when you consider the fact that your home is an investment that will likely grow in value over time, it makes sense to spend a significant amount of your income on the property.
Just because a house is expensive does not mean you have to pay for it in cash. Here are tips for mortgaging a high priced property.
1. Make Sure the Home Is in Your Budget
Before you start looking at multi-million dollar homes that are out of your price range, make sure you know how much of a home you can actually afford. Just because you’re pre-approved for a certain loan amount, doesn’t mean that buying a house at the top-end of the approved amount is a good decision.
Financial experts recommend that your housing costs should not exceed 25% of your monthly income. So, if you and your spouse bring home a monthly income of $6,000, your mortgage payment should be $1,500 or lower.
And remember that your housing costs include your basic mortgage payment plus property taxes, homeowners insurance, and Private Mortgage Insurance (PMI).
2. Save Up a Hefty Down Payment
One of the most common mortgage questions is how to lower your monthly payment amount. The easiest way to lower your monthly payment is by increasing your down payment.
Ideally, you should be making a down payment of at least 20% of the home’s selling price. But, if you can afford to pay a higher amount, take advantage of the savings this will provide you later.
With a higher down payment, your overall loan amount will be less. This means lower monthly payments. But in addition to that, if you make a down payment of least 20%, you don’t have any PMI added on to your monthly mortgage payment.
3. Take Advantage of Low Interest Rates
Getting the lowest possible interest rate can save you thousands of dollars down the road. When it comes to getting a mortgage, make sure you’re negotiating for the best rate out there.
Have you ever taken the time to calculate the true price of your loans once a mortgage is calculated into the picture? Let’s say you have a $200,000 30-year mortgage with an interest rate of 4.5%. At the end of the mortgage’s life, you’ll have actually paid $364,813 once interest is added in.
To get a better rate, take the time to improve your credit score. Also, don’t be afraid to shop around and see what rates other mortgage brokers can offer you.
You can Afford a High Priced Home
Using these three tips, you can afford the high priced home of your dreams.
Start by making sure your dreams are realistic by keeping your monthly housing costs below 25% of your income. Then, spend a decent amount of time saving up for a hefty down payment to help lower your monthly payments. Last but not least, make sure you’re getting the lowest interest rate possible.
Ready to find the luxury home of your dreams? Head over to the Homes section of our site to see what’s properties are currently for sale.