“How much should you borrow?” is a question people with adverse credit wrestle with. The answer is simply as much as you can afford. This is probably less than what you will qualify to borrow from a mortgage lender. To determine what you can afford, factor the mortgage payment and other home costs into your budget.



Cost Of A Mortgage

Your mortgage payment is not just the loan payment; it also includes real estate taxes, homeowner's insurance, and private mortgage insurance premium if you borrow more than 80% of the home's value. These three items often add several hundred dollars to your monthly payment.

Cost Of A Home

Unlike renting, you will be responsible for utility payments for your home. Home utilities are usually higher than an apartment since you have more area to heat and usually a lawn to water. You will also need to plan on making unexpected home repairs. This can include fixing a leaky faucet, replacing appliances, or remodeling.

Plan A Budget

Before you complete the process for a mortgage loan, plan out your monthly budget. List out your current expenses for food, clothing, and other regular bills. Next, decide on an amount to pay for the home, which include both the mortgage payment and home repair expenses. Most experts recommend paying no more than a third of your gross monthly income to home expenses.

One factor to consider is that your mortgage payment will not go up, but more than likely your income will. So through the years, your mortgage will take a smaller percent of your monthly income. However, you don't want to place yourself in too tight of a financial situation by planning on yearly raises.

Get A Pre-approved Mortgage

Another way to find how much you can afford is to apply for a pre-approved mortgage. The mortgage lender will approve you for a maximum amount, but you can borrow less than this. While you are going through the mortgage loan process, ask how much the monthly mortgage payment will be.

Shop Prices

When you do start looking at homes, ask about taxes. This often overlooked area makes a significant impact on your budget. Also, expect taxes to increase as the value of your home rises.