Are you excited to buy a house but aren’t sure how much you should spend? In this episode of Naturally
NWA, I’m going to walk you through how to determine a monthly housing payment that you can afford.
We’ll cover everything from your mortgage payment to HOA fees so you know exactly what to expect.
Breaking Down The Costs
Buying a house is exciting, but it’s also emotional—and sometimes, emotion can lead to bad decisions.
Before you get too far into the process, you need to know how much should you spend on a house.
Remember, when you buy a house and are financing, you’re committing to a monthly mortgage
payment. Before you spend any time looking at houses, you need to first determine what price range
you would be comfortable with.
I’m going to walk you through how to determine a monthly payment that you can afford. The first place
we need to start is by breaking down every cost associated with homeownership on a monthly basis.
Knowing all of the costs involved in owning a property will help you determine an overall purchase price.
Your monthly mortgage payment won’t be your only expense every month of owning a home.
My advice is to work the numbers backward to come up with a monthly payment that you are
comfortable with. You can then back that into a purchase price that reflects that amount.
Your Mortgage Payment And Property Taxes
The largest monthly housing expense that you will have is the one that you make to the bank. If you are
obtaining a loan, you’ll have a monthly mortgage payment that will consist of the principal, interest,
taxes, and insurance. This will be a fixed amount based on the amount that you are taking out on the
A portion of your mortgage payment gets applied to the interest. Another portion goes towards paying
your principal down each month. The next monthly expense of homeownership is going to be your
property taxes. Property taxes are paid from your escrow account and are included in the monthly
You can figure out this monthly amount by looking up the annual property taxes and dividing that
number by 12. If you put down more than 20%, you may elect to pay your tax bill on your own annually.
For budget reasons, my advice is to make it a part of your monthly payment and escrow with your
Insurance, HOAs, And PMI
Another expense typically paid by your escrow account is your homeowner’s insurance. Your lender
requires this to be included in your monthly mortgage payment to make sure that their investment is
protected. Property taxes and homeowners insurance can fluctuate, so your monthly payment can
increase or decrease if either of these things changes.
The next expense you may have would be monthly or annual homeowners association dues. This is only
an expense if your property has an HOA attached to it. HOA dues are used to pay for common area
expenses such as landscaping, community pools, insurance, and more.
The last expense you may also incur is what is known as private mortgage insurance, or PMI. PMI is a
monthly insurance charge in addition to your mortgage payment that is applied when you put down less
than 20% or you have less than 20% of equity on your property.
Getting Into Your Dream Home
All of these costs make up your monthly housing obligation. Before you start looking at properties for
sale, you want to look in areas that will fit your budget first considering all the costs involved in
homeownership. The last thing you want to do is fall in love with a property that looks like you might be able to afford it at the outset—only to find out that once you figure in taxes, insurance, and HOA dues, it is no longer attainable.
I hope this helped you determine how to come up with a target search price that would match your
ideal monthly payment. I help people just like you buy and sell real estate every day, and I would love
the opportunity to assist you as well. If you're looking for something specific or have additional
questions about the process or the local area, please feel free to reach out to me and I’ll be happy to
Don’t forget to subscribe to my channel for more information on Northwest Arkansas. Stay tuned to the
next episode of Naturally NWA to see what I feature next!