Now that the housing market is gaining steam, especially among millennials, experts are throwing out a bit of caution to potential first-time home buyers, urging them not to make one very common mistake.
According to a new report by CNBC, it’s fairly common for first-timers to overestimate what they can afford in a mortgage, forgetting to take into consideration interest, taxes and insurance – and that mistake can be very costly.
“It’s a good idea to get pre-approved for a mortgage loan so you know how much a bank is willing to lend you before you make an offer on a home,” suggest reporter Landon Dowdy. “But keep in mind that the amount you’re pre-approved to borrow from a mortgage lender may be more than you can actually afford once you factor in taxes, insurance and other costs like condo or homeowners’ association fees and maintenance. As a general guideline, your total monthly payment (including mortgage principal, interest, real estate taxes and homeowners insurance) shouldn’t exceed 28 percent of your gross, or pretax, income.”
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