The dream of owning a home is within reach, but before you start looking at properties, it’s important to know exactly how much you can afford. From understanding your finances to exploring your loan options, this guide will help you confidently calculate your home budget and ensure that your new home fits perfectly within your lifestyle and finances.
Assess Your Finances First
Start with a clear understanding of your finances. This means evaluating your monthly income including salary, side gigs, and any passive income.
Next, calculate all your monthly expenses. Your rent, utilities, groceries, transport, and existing loans. Subtract these from your total income, and what’s left is what you can dedicate to your mortgage payments.
A good rule of thumb is that your mortgage shouldn’t exceed 30% of your monthly income. For example, if you earn KSh 100,000, aim to keep your mortgage payments under KSh 30,000. This allows you to live comfortably while ensuring your mortgage remains manageable.
Save for the Down Payment
Most lenders expect a down payment of 10% to 30% of the property's value. For a KSh 5 million property, this means setting aside KSh 500,000 to 1.5 million.
The larger the down payment, the less you need to borrow, which lowers your monthly repayments and interest costs. If saving the full amount is challenging, look into home loan options with lower down payment requirements, though these may come with higher interest rates.
Understand Your Loan Options
Now that you’ve saved for the down payment, it's time to explore your mortgage options. Typical mortgage rates range from 9% to 15%, with loan terms spanning 10 to 20 years.
Be sure to shop around and compare rates from different mortgage lenders to find the best deal. If you’re unsure about the best loan for your situation, consult a mortgage broker to help you navigate the complexities and secure the right loan for your financial situation.
Calculate Your Monthly Payments
Use an online mortgage calculator to determine how much you can borrow based on your loan amount, interest rate, and loan term. For instance, a loan of KSh 4 million at 12% interest for 15 years may result in monthly payments of around KSh 45,000. While the calculator is helpful, a financial advisor can provide a more tailored estimate, ensuring you can comfortably manage your mortgage payments.
Factor in Additional Costs
Beyond your mortgage, remember to budget for property taxes, home insurance, and maintenance costs. Property taxes are based on the property’s value and can add up over time, so it's important to factor this into your overall budget.
Plan for the Future
When planning for homeownership, consider your future financial situation.
Will your income increase over time?
What about your living expenses?
Make sure the mortgage is affordable both now and in the long run. Homeownership is a long-term commitment, and it’s essential to choose a property that fits within your home budget now and in the future.
