How Much Home Can You Really Afford?

Real Estate News

How Much Home Can You Really Afford?


Written By: Jaymi Naciri
Wednesday, February 28, 2018

So, youre getting ready to buy your first home, and you feel like youre at the mercy of the market. And your mortgage lender. In some ways, it might even feel like theyre working against each other - especially if youre in a really hot market in which you cant qualify for the amount youd need to buy what you want.

When it comes to providing pre-approvals for would-be homebuyers, lenders today are more careful than they were in the years leading up to the market crash, and that means your financial picture will be more rigorously scrutinized to determine your credit-worthiness and develop your max approval amount. Trust us, thats a good thing. The last thing you want is to be house poor. Having a great place to live that you cant enjoy or furnish or even leave because you have no money left wont be fun.

"Just because a lender says younbsp;cannbsp;afford a certain mortgage doesnt mean younbsp;should," said TIME: Money. "Consider your take-home pay - what actually goes into the bank after taxes, health insurance, and savings for retirement and college. Then add up all your monthly bills, not just debt but also things like utilities, phone, and groceries. You want to feel comfortable that you can cover all your household obligations while still meeting your other financial goalsnbsp;andnbsp;keeping six months of expenses in annbsp;emergency fund."

Thats why its so important to consider all of your monthly expenses >

Increased commuter costs

Are you moving out to the lsquo;burbs? That hour-long commute each way is going to add to your bottom line. Of course youll be using more gas. Will you also incur tolls? Then there is the wear and tear on your car, which could mean additional costs. You can estimate your commuter costs here.

Higher utility bills

A larger place could mean higher utility bills. Then again, more energy-efficient appliances, windows and doors, and HVAC could potentially result in lower bills, which could be a reason to look for a newer home over something older. Its not out of line to inquire about utility bill costs from the existing owner through your Realtor is probably best. This information could be critical in helping to make the best decision when buying a new home.

Homeowners association

Your pre-approval amount is an all-in number, but that number only includes principal, interest, taxes, and insurance. If you are buying in a community that has a Homeowners Association, your fee will be a separate cost that needs to be considered. An HOA fee can range greatly depending on your location, the number of homes in the community, and the amenities and services included.

Home improvements

Youre likely going to have a mailbox full of credit card pre-approvals and offers from places like Home Depot and Lowes after you close escrow - and they can be tempting. Reeeaaallly tempting, especially if you need new appliances or countertops or flooring or all of the above. Ditto for furniture stores, because, like Lowes and Home Depot, those offers are often zero-interest deals. It may make sense to take advantage of one or more of them to make some necessary or wanted updates to your home - if you can swing the payments. They obviously add to your monthly obligations, even at no interest. And keep in mind that if you miss, or are late on, a payment, that zero interest is replaced with a much larger number, and that means youll face a much larger balance to pay.

Landscaping

If youre coming from an apartment or a rental where the outside maintenance is taken care of by someone else, get ready to either: buy a lawnmower and an edger and spend your Saturday mornings in the yard, or pay someone else to take care of it.

Warranty

If youre buying a brand-new home, youll typically have a warranty provided by the builder or developer, often for one year. You have the option of extending that, or buying/extending an existing warranty on an older home, and all of those options will cost you.



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