Expert recommendations to determine how much you can afford to spend on a mortgage vary. Some say you should never spend more than 25% of your gross income on your mortgage, while others recommend keeping the number below 33%. Less conservative advice may suggest an even higher percentage.

This is because figuring out how much house you can afford is not as simple as following a one-size-fits-all formula. Instead, you need to consider your lifestyle, changes you anticipate in the future, and your mortgage pre-approval to determine your housing budget.

Keep reading for some things to keep in mind as you plan to buy your first home.

Mortgage Pre-Approval

Getting pre-approved for a mortgage is an essential step in determining your housing budget. Make time to talk with a loan officer, who will look at all of the relevant documents and give you an idea of what the mortgage lender will say you can afford.

The amount you are pre-approved for is a great first step in determining your mortgage budget. After taking into consideration your debt to income ratio, your credit score, your income, and your assets, the experts will decide what they believe you can afford to pay for the foreseeable future.

Lifestyle

There are some details that your loan officer won’t be able to factor in, like the lifestyle you lead or plan to lead. As you are determining your mortgage budget, consider whether you plan to travel, entertain, or take up new hobbies.

Having enough financial margin to support your lifestyle is essential in making sure you buy a home you can truly afford. Consider these lifestyle factors as you come up with your budget:

How do you plan to furnish the home
Your savings goals
Travel plans
Convenience expenses, like eating out, housekeeping, and lawn care services

Maintenance and Emergencies

When determining your mortgage budget, you need to consider how prepared you are for the expected maintenance and emergencies that come with owning a home. Depending on the size and condition of the home, you can reasonably anticipate the emergency fund you should have on hand.

Take this into consideration as you look at potential properties. Even if the purchase price fits within your budget, an older home that will need a new roof or water heater in the near future may be a bigger investment than you are ready to take on. Similarly, a new construction home that comes with a slightly higher price tag may cost you less in the long run because the appliances, roof, HVAC, and other parts of the home are brand new.

Future Plans

None of us can predict the future, but you can make educated decisions when determining your mortgage budget by considering your plans. As you consider your monthly mortgage payment and how well it fits with your income and expenses, consider how your income and expenses may change in the future. If you plan to stay in the home for more than a couple of years, you want to make sure the payment is sustainable for a long time.

Consider these potential future plans as you decide what monthly mortgage payment is right for you:

Family planning: Do you have children? Are you planning to start a family or grow yours? Will this affect your financial situation, either by adding in childcare costs or lowering income?
Retirement: If you plan to retire in this home, do you know what your retirement income will be and how well the mortgage payment will fit within it?
Continuing education: If you plan to go back to school to get another degree, will the home remain affordable during that period?
Renovations: Do you hope to renovate or remodel the property? If so, are you planning to wait until you can refinance and use those funds to renovate, or do you hope to finance it from your own savings?

When you are ready to begin the process of buying your home, we have a team of experts to walk with you every step of the way. Contact us today to find out how we can help!

More Great Tips for Buyers:

5 Benefits of Buying a House with Good Credit

The Most Important Steps Toward Buying Your First Home

First Time Homebuyer Mistakes to Avoid

Tips on How to Get a Mortgage Without Tax Returns

What Determines Your Mortgage Rate

A Trust Income Mortgage is perfect for those who are primarily supported by trust income and therefore cannot submit conventional pay stubs and employment verification when applying for a mortgage.

If you are the beneficiary of a trust, check out our information on Trust Income Mortgages to find out if it might be the right fit for your next home purchase.

What is a Trust Income Mortgage?

A Trust Income Mortgage is a home loan product available to trust beneficiaries as an alternative to a conventional mortgage. For a Trust Income Mortgage, income from a trust is used for qualification in place of employment history, pay stubs, and employer verification.

What Terms Can I Expect on a Trust Income Mortgage?

As always, terms will vary, but it is common to need at least three years of trust income to qualify for a Trust Income Mortgage. However, unlike a conventional income verification where the lender will only look at past income, a lender will need to confirm the balance of the trust and how it is paid out to verify that your trust income will continue for at least three years in addition to the two year income history.

The trust income can also be combined with another stream of income to qualify. In this case, the lender will want to see pay stubs and employment verification in addition to the trust information. The incomes will be combined when going through the mortgage qualification process.

What Will My Lender Want to See?

To qualify you for a Trust Income Mortgage, the lender will need documentation of the trust. This will include documents verifying the amount, frequency, and duration of your trust income payments.

You will also need to present tax returns that show you have been receiving this same trust income for at least the past two years.

If you plan to take out additional funds from the trust to use for down payment or closing costs, be prepared to verify that the balance of the trust will not be impacted enough to change the other qualification factors.

In other words, if your trust has a balance of $1,000,000, and your income from it each year is $100,000, the lender will see that you have ten years of income available in the trust. However, if you plan to take $200,000 from the trust to use for down payment and closing costs, the lender will see that you have eight years of available income in the trust. In some cases, taking funds from the trust for down payment and closing costs will make a big enough difference to determine whether you will qualify.

Who is the Best Fit for a Trust Income Mortgage?

A Trust Income Mortgage is best for someone who either does not have verifiable income outside of trust income, or someone who wants to qualify for more than their employment income alone will achieve.

You may also find a Trust Income Mortgage to be the right fit for you if you are hoping for a shorter escrow period. In some cases, a Trust Income Mortgage can offer an accelerated pace. If you are able to present all of the necessary documents for the trust immediately, the lender may be able to move more quickly without needing to verify income and employment with a third-party employer.

If you are the beneficiary of a trust and will be receiving income from it for at least the next three years, it is very possible that a Trust Income Mortgage may be a great fit for your needs. To find out more, reach out to us today to see which type of mortgage will be best for your specific situation.