Home buying can be a scary thing, and it’s no easy task in today’s market. While nobody ever thinks they will fall victim to being house poor, it does happen to some. Therefore, when asking yourself “how much home can I actually afford” it’s best to think about ALL the possible expenses that go into homeownership.
There are always “hidden” costs that go into owning a home that many don’t even think about when house hunting. While you can definitely find some that are still affordable, there are many factors and expenses you should consider before taking the leap.
According to recent data from Zillow:
- U.S. homeowners on average spend more than $9,000 per year in hidden homeownership costs and maintenance expenses
- On top of that, we have $6,042 per year in unavoidable hidden costs: homeowners insurance, property taxes, and utilities
- We pay an average of $3,435 per year in annual optional costs including house cleaning, yard care, gutter cleaning, carpet cleaning, and pressure washing.
That’s a lot of extra money each year that many homeowners do not realize that they may need to pay for.
By not knowing about these costs, a person may become stressed due to the amount of debt they may rack up from being house poor. It may also delay retirement, lead to a house being empty (there might be no money left to decorate), and more.
Luckily for you, you’re reading this article and will learn some things you can do so that you can make sure you don’t fall into a situation like this. When pondering the question “How much home can I afford,” think about the many tips below.
Buying a home can easily lead to being house poor if you don’t do enough research.
When some families buy a home, they don’t think about the total cost of homeownership. While you may be able to afford the monthly mortgage payment, you may not be able to afford everything else.
Before you say “yes” to a home, I recommend you add up all of the extra costs that you may have to pay for if you decide to buy a specific home.
Other homeownership costs include:
- Gas. Many homes run on gas in order to have hot water, to use the stove, and so on.
- Electricity. Generally, the bigger your home then the higher your electricity bill will be.
- Sewer. This isn’t super expensive, but it is generally around $30 a month from what I’ve seen.
- Trash. This isn’t super expensive either but it does cost money.
- Water (and possibly irrigation). Water bills can vary widely. I know many who live in areas where the average water bill is a few hundred each month.
- Property taxes. Property taxes can vary widely from town to town. You may find yourself looking at two similar houses with similar price tags, but the property taxes may vary by thousands of dollars annually. That is a LOT of money. While it may seem small when compared to the actual home purchase price, remember that you have to pay property taxes annually and a difference of just $3,600 a year is $300 a month for life.
- Home insurance. Home insurance can be cheap in some areas but crazy expensive in others. Don’t forget to look into the cost of earthquake, flood, and hurricane insurance as well as that can add up quickly depending on where you live.
- Maintenance and repairs. Even if your home is brand new, you may have to pay for repairs, which is something that many don’t realize. No matter how old your home is, repair and maintenance costs will eventually come into play.
- Homeowner’s association fees. This can also vary widely. You should always see if the house you are interested in has an HOA because the fees can be high and there may be rules you have to follow that you won’t like.
- Home furnishings. Furnishing your home can be done cheaply. However there are some who buy huge homes and can’t afford to put anything in them. Even basic necessities such as a table or a bed. Why own a $500,000 house if you don’t have any furniture?
Many potential homeowners are approved for home loans that are somewhere around 30% to 35% of their salary before taxes.
That’s a lot of money. This amount is before taxes, which means that your actual monthly home payment would be a significant portion of your take-home pay each month. Many who buy at the full approval amount cannot afford their homes due to the fact that it is such a significant percentage of what they earn.
If you don’t want to be house poor, make sure to buy a home that is less than what you’re approved for. You should add up all of the costs of owning a home and make sure it’s an amount you are comfortable with.
Have an Emergency Fund
Remember that last article I talked about? If not, check it out and READ UP! It will save you some hassle down the road.
An emergency fund isn’t just to protect you from your job. They also exist to help you in case something goes wrong with your home.
Your roof could leak, a tree may fall on your home, a pipe may burst, and an appliance may break. Homes have many things that go into them and you never know if something may need to be fixed.
By having an emergency fund, you will have a fund that will help you if something were to go wrong. Why hassle with more debt when you have the money already set aside? It may not be a cheap fix but at least you’ll be prepared.
Do you know anyone who is house poor?
Good Luck, Newbies