Between you and the bank, you’ll know how much you can afford for a monthly housing payment. The last post explained some of the guidelines that banks use to determine this. For you to be comfortable though, take the amount you want to spend each month and deduct any related costs such as property taxes and monthly maintenance fees. For example if you want to spend $2,000 each month on housing but must pay $200 each month in condo fees and set aside $150 per month for property taxes, $1,650 remains to pay the mortgage payment. This assumes that you’ve budgeted for your other monthly housing bills such as heat, electricity, gas, cable and internet.

$1,650 is your monthly principle and interest budget and some quick math on a mortgage calculator and you will learn how much mortgage this covers. Let’s estimate $250,000. Combine this with your down payment to get your purchase budget. Before you start looking for homes there’s one more thing to check. What is the minimum down payment you must have? It’s usually somewhere between 10 and 25%. Check with your banker to find out so that you can be confident that you’re looking in the right price range. Let’s say that you have a $30,000 down payment, add this to the $250,000 mortgage you can afford and you can buy a home for $280,000. There are some other costs to consider and we’ll take a look at them in the next post.

Some of these ‘rules’ may seem a little restrictive but in my experience they are reasonable guidelines – And who wants to stay home and worry where the money will come from for the next mortgage payment instead of meeting your friends for a night out.