To make the most of your mortgage, you need to decide what works for you and then shop around to find it. In this article, you’ll find three steps to get the job done right.

Define what affordable means to you

Only you can decide how much you are comfortable paying for your housing each month. In most cases, your lender can consider only if you are able to repay your mortgage, not whether you will be comfortable repaying your loan. Based on your whole financial picture, think about whether you want to take on the mortgage payment plus the other costs of homeownership such as appliances, repairs, and maintenance.

Think about what an affordable home loan looks like for you. These worksheets can help. First, estimate your total monthly home payment. Second, look at the percentage of your income that will go toward your monthly home payment. Third, look at how much money you will have available to spend on the rest of your monthly expenses.

Step 1. Estimate your total monthly home payment by adding up the items below

Your total monthly home payment is more than just your mortgage. There are more expenses that go along with owning your home. Start with estimates and adjust as you go.

Step one know your numbers

Step 2. Estimate the percentage of your income spent on your monthly home payment

Calculate the percentage of your total monthly income that goes toward your total monthly home payment each month. A mortgage lending rule of thumb is that your total monthly home payment should be at or below 28% of your total monthly income before taxes. Lenders may approve you for more or for less depending on your overall financial picture.

Estimate the percentage of your income spent on your monthly home payment

Step 3. Estimate what is left after subtracting your monthly debts

To determine whether you are comfortable with your total monthly home payment, figure out how much of your income is left after you pay for your housing plus your other monthly debts.

Estimate what is left after subtracting your monthly debts

Ask your spouse, a loved one, or friend about what affordable means to you. Is it more important to have a bigger home with a larger mortgage or more financial flexibility? How much do we want to budget for all the monthly housing costs, including repairs, furniture, and new appliances? What will a mortgage payment mean for other financial goals?

While your household income and regular monthly debts may be relatively stable, unexpected expenses and unplanned spending can impact your savings. A good affordability rule of thumb is to have three months of payments, including your housing payment and other monthly debts, in reserve. This will allow you to cover your mortgage payment in case of some unexpected event.

Whether you’re buying a new home or refinancing, CosmoLends makes it easy for you to take the first step and get prequalified by calling 216.387.1003.

Published from Your home loan toolkit – A step-by-step guide by Consumer Financial Protection Bureau