How much does an average person need for a house loan?

As a general rule of thumb, a household should not spend more than 28% of its gross monthly income on housing-related expenses.

With that said, this is a very personal decision based upon your budget. Different types of mortgage loans require different down payments. As well, loans can carry much different terms.

Your down payment is important

For First Choice, we recommend having a 10%-20% down payment in your savings account to get started. This allows for some fees to be removed, and for the process to be more likely to be approved.

As well, you can think of a down payment as a “double-money maker”.

The down-payment double-money maker

Let’s say that your home is going to be $100,000. We’ll also assume the terms are a 20-year mortgage.

If you put 10% down, your base monthly mortgage could be $550 per month. However, if you have 20% down, your monthly mortgage payment can start at $475 per month. By saving correctly and preparing, you could go as far as having 30% down, which would drop that monthly payment to $400 per month.

In the above example, the difference between 10% and 30% is about $20,000 initially, but worth potentially $35,000 or more in mortgage payment savings. Also, please be aware that these are example numbers, and we did not include taxes, insurance and other fees within the example monthly payments.

Other house loan fees

In addition to mortgage payments, housing expenses may include many other fees. Sometimes, these fees are included in your monthly mortgage payment. Other times, they are not.

When you calculate your monthly housing expenses, you should include property taxes, home insurance, homeowners association fees and similar expenses.

This is not the same “rule” for everyone. However, this general value will put you into a good position for your next home.

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