Before you fall in love with that beautiful home, first find out how much house you can afford. A healthy financial practice is to limit your housing expenses (mortgage, property insurance, property taxes and HOA/condo fees) to 25 - 30% of your gross monthly take home income.
The term "House Poor" refers to people who spend an exorbitant amount of household income on housing expenses. Here are some factors to consider that will have a tremendous impact on your monthly housing payments:
Down Payment - The more cash you have available to use as a down payment the more you’re able to offset monthly housing payments.
Loan Interest Rate – Higher scores usually mean lower rates which equal lower mortgage payments. Before you start your home search, make sure your credit is in the best shape possible. A subprime credit score (580 - 619) will yield the most unfavorable loan terms. Borrowers in this category are considered “high risk” and don't usually qualify for conventional loans, although there are lenders who have loan options available to “high risk” borrowers. A near – prime credit score (620 - 659) will allow you to get more favorable loan terms. Borrowers in this category are usually eligible for conventional loans. If you fall into the prime category, (660 - 719) you have a much wider array of loan options and qualify for competitive interest rates. Super prime (720 plus) is considered the gold standard of credit scores, although the average borrower falls below this category. This group will have access to the most competitive and favorable lending terms.
Property Taxes & Property Insurance - Property taxes are based on 1.) assessed value of the home and 2.) physical location. Depending on these factors you may end up with a higher or lower tax rate. Use an online calculator (https://smartasset.com/taxes/massachusetts-property-tax-calculator) to get an estimate of what you should expect for property taxes. Shopping multiple insurance providers is a smart move that can save you money. Ultimately, it's best to compare policies to understand coverage levels and quality of coverage. It can be tempting to buy a bare-bones policy that saves on cost but comes back to haunt you later on. Finally, be sure you're making an apples to apples comparison and take the time to understand what is covered and what is not.
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