What 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 –
- 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.
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
While 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.