You just got a new job offer, or you just matched for residency. You look at your yearly salary and start to think "What kind of home can I comfortably afford?
You hop on Zillow and start looking at houses in the area. You find one that gets you really excited, and pop on a mortgage estimator to see if you can afford it.
The results are depressing.
Automated mortgage calculators are programmed to assume mediocre credit, low down payments, and high rates. There is a better way to get a "guestimate" of what a house payment will be. First we need to know what makes up a mortgage payment in the eyes of a bank.
You need to make sure you estimate taxes and homeowners insurance into your ratios. A local realtor has access to tax data, Zillow also displays this on their website. Usually in a yearly rate- divide it by 12 and that will be your monthly portion. Home insurance rates vary from state to state, area to area. You can always ask other colleagues or contacts in the area what the average is- or you can ask a realtor.
So what is a "good" mortgage payment?
On the mortgage industry we reccomend that a comfortable mortgage payment should not be anymore than 32% of your gross income.
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