Earlier this year, I published the post Is Being House Poor Limiting You? While no one ever thinks they will fall into being house poor, it does happen to some. Due to this, when asking yourself the question “how much home can I afford,” it's best to think about ALL of the expenses that go into homeownership.
There are many “hidden” costs that go into homeownership that many do not think about when buying a home. While some homes may seem affordable, there are many factors and expenses to think about.
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
- U.S. homeowners pay an average of $6,042 per year in unavoidable hidden costs: homeowners insurance, property taxes and utilities
- U.S. homeowners 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.
There are things you can do though so that you can make sure you don’t fall into a house poor situation, though. When pondering the question “How much home can I afford,” think about the many tips below.
Add up all of the costs.
Buying a home can easily lead to being house poor if you don’t do enough research. This can limit you because you may be even more house poor than you originally thought.
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 if you don’t do your research.
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.
- Homeowners association fees. This can also vary widely. You should always see if the house you are interested in is in an HOA because the fees can be high and there may be rules you don’t like as well.
- Home furnishings. Furnishing your home can be done cheaply, but I know some who buy huge homes but can’t afford to put anything in them, such as a table, a bed, and so on. Why own a $500,000 house if you don’t have any furniture?
Buy for less than what you are approved for.
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 as well, which means that your actual monthly home payment would be a significant portion of your take-home income 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, then you should make sure to buy a home that is less than what you are approved for. You should also add up all of the costs of owning a home and make sure it is an amount that you are comfortable with.
- Renting Out A Room In Your Home For Extra Money
- How To Live On One Income
- Ways To Make An Extra $1,000 A Month
Have an emergency fund.
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 spring a leak, a tree may fall on your home, a pipe may burst, there may be an electrical problem and more. 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. It will be you be more prepared so that you don’t have to take on any debt in order to help pay for an expense.
What would you say to someone who asks “How much home can I afford?” Do you know anyone who is house poor?
Join the free Master Your Money course!
Join the free email course and finally learn how to manage your money better, pay off debt, save more money, and reach financial freedom.