The Secret to Buying a Home That You Can Afford

When the desire to become a homeowner latches onto your heart, it’s all too easy to lose your mind and ignore your budget.

Even on our most recent adventure—our fifth time around—my husband and I had difficulty keeping our priorities in the forefront.

It becomes even tougher when friends and family members are encouraging you to buy because It’s the same/a little more/a little less than renting! and You won’t be throwing your money away every month!

Whatever the source, that temptation can be hard to resist.

However, if you are willing to follow a simple formula, you will increase your odds of buying a house you can love and live with.

So what’s the secret to buying a home you can afford?

Live like you already own the house.

Here’s what that looks like:

1.  Add up the known expenses for the type and size of home you have in mind.

2.  Put these items in your monthly budget, and set the money aside as though you are actually spending it.

3.  Live with these finances as part of your life for at least six months.

If you can successfully and comfortably handle the increase in your budget, you’ll be well on your way to buying a home you can afford.

Plus, you will have set aside six months of the increase in expenses, which will add up to a tidy sum!

To know what you’ll want to include, see the list below.

There are several types of expenses you’ll need to cover.

Some are one-time outlays, and others are monthly or otherwise regularly occurring bills.

1.  Pre-purchase costs. When your offer is accepted on a house, you will need to have inspections done as part of your due diligence. These can typically cost $300-$900 per property.

2.  Down payment. Talk to your bank about what you can expect regarding requirements for a down payment.  As an example, our local credit union requires a minimum of 3%. If you are looking at a $150,000 home, that’s $4,500.

3.  Closing costs. There are various fees for the buyer in a real estate transaction. Typically, these fees—your closing costs—will range from 3-5% of the cost of the amount you borrow.

4.  Mortgage, taxes, house insurance, and PMI.  Again, your bank is a terrific resource for estimating mortgage payments. The yearly property taxes can generally be found in the real estate listing. Homeowners insurance can vary tremendously from region to region, so you might want to check with a local insurance agent to see if they can give you a very general idea of what to expect. PMI is the monthly insurance the bank requires on your mortgage until you have paid for at least 20% of the value of your home. Expect to pay anywhere from $35-$70 per $100,000 you borrow. You can subtract what you pay for rent from the total of these four items before adding it to the budget.

5.  Utilities.  You can call the utility company that services a neighborhood, and ask for the average monthly utility costs for the past year for a particular address. If that isn’t possible, speak to folks you trust to get an idea of what you’ll pay in your area for heat, water and sewer, electricity, and trash disposal. Remember, too, to subtract your current utility costs from this total before adding it to your budget.

6.  Appliances, furnishings, and equipment. You’ll probably be surprised at how much it takes to furnish an empty house. Everything from large appliances to installing a new toilet becomes fair game. Even smaller purchases like curtains and bedding can add up pretty quickly, so it’s important they are in the budget. Do a little window shopping, whether online, or in person, to get a feel for the cost of kitchen appliances, furniture, home goods, and equipment, such as  lawnmowers.

7.  Maintenance.  While there are many different variables that will affect how much you’ll need to set aside for repairs and maintenance, setting aside 1%-3% of the cost of your home is a good rule of thumb.

While these figures may seem daunting, they represent a pretty realistic picture of the cost of home ownership.

If going through this exercise reveals you are not financially ready for owning your own home, use this information to create a lifestyle and budget that will take you where you need to be.

That is a far better situation than purchasing your dream house and having it turn into a financial nightmare.

As the Boy Scouts say, “Be prepared!” so when you do buy, you choose a home that comfortably fits your heart and budget.

For a more insight on buying a home, check out these Engaged Marriage posts:

When Should Newlyweds Buy Their First House?

5 Questions to Ask Before Buying a Home

When Should a Couple Rent vs Buy a Home?

Comment: What would you add to this list to help couples buy a home they can truly afford over the long term?

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