Posted by & filed under Buying.

what can i afford in a houseWhat can I afford in a house is always the right question to ask.  Why?  Because what you can afford is more than a mortgage quote.

Affordability is Everything

Affordability is everything.  It is no fun to be house poor.  I bet you know these folks – they used to go out to dinner, to the movies etc.  But they just bought a house and now nothing’s left over once the mortgage is paid.   How did this happen?  They didn’t understand affordability.

What Can I Afford In A House

Let’s look at the total cost of owning a house –

  • Mortgage
  • Property Taxes
  • Homeowner Insurance
  • Utilities (Oil/Gas/Electric/Water)
  • Maintenance (Landscaping/Snow Removal/Regular Maintenance)

I’m not including a few other items that may or may not apply – a home warranty for houses with appliances/furnaces etc. that are more than 5 years old, a termite warranty and oil tank insurance.

gas and electric bills

I’m also assuming that you have a few month’s worth of mortgage payments in a separate account for emergencies such as a new roof, upgrades etc.  If not, you should budget in 3-6 month’s worth of mortgage payments for this.  I’d say at least $100 per month until you have this saved up.

Using a $500,000 purchase with a 5% down payment, here’s what we have –

  • $475,000 mortgage – $2,450 p/month
  • $12,000 property taxes – $1,000 p/month
  • Homeowner Insurance – $100 p/month
  • Heat, cooling, gas, electric – $300 p/month
  • Maintenance – $125 p/month

landscapingWhile your mortgage comes to $3,550 per month you have an additional $425 per month in expenses.  Many home buyers focus on just the mortgage payment and that’s how you can get into trouble.

So here’s the formula for what’s affordable – mortgage + carrying costs.  If that figure works for you, then the house is affordable.

To do this right, however, you must have accurate figures.  I’ve seen a lot of mortgages figured with ridiculously low homeowner insurance and property tax figures.  If you’d like help in getting the right figures to buy a home, just call or text me at 201-741-8490.

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