Buying a home isn’t just about the mortgage
The excitement of finding your dream home can often lead to focusing solely on the sticker price and that monthly mortgage payment. While that’s certainly a significant factor, the real trick to successful homeownership is understanding your total ability to pay. Affordability stretches beyond your mortgage; it encompasses the complete financial picture of owning a home.
The Foundation: Know Where Your Money Goes
Dave Ramsey says to create a monthly budget and know exactly where your money goes every month. This simple yet powerful advice is the cornerstone of determining true housing affordability.
You need a crystal-clear understanding of your current financial landscape to grasp how much home you can afford. How much money comes into your household each month, and how much goes out? Many people operate without a detailed budget, leaving them in the dark about their actual income and expenses.
Building Your Budget Blueprint:
Your comprehensive monthly budget should paint a complete picture of your financial inflows and outflows. This includes:
- All Income: Every source of money coming into your household – salaries, side hustles, investments, etc.
- All Expenses: Track every single outgoing expense, no matter how small – groceries, transportation, entertainment, loan payments, subscriptions, and yes, your current housing costs.
Anchoring to Your Present: What Can You Afford Now?
Take a realistic look at your current housing situation.
- How much do you currently pay for rent? Is this a comfortable amount within your overall budget? Does it leave you with too little left over every month?
- How much more could you realistically afford every month before it starts to feel like a financial strain? Be honest with yourself here. That extra $100 or $200 might seem manageable on paper, but how will it impact your lifestyle and savings goals?
Looking Beyond the Loan: The Hidden Costs of Homeownership
The mortgage payment is just one piece of the housing affordability puzzle. To get a true picture of the financial commitment, you need to factor in these often-overlooked expenses:
- Utilities: Unlike renting, where some utilities might be included, as a homeowner, you’ll likely be responsible for the full cost of electricity, gas, water, and trash/recycling services. These can fluctuate depending on the size of the home and your usage.
- Homeowners Insurance: Protecting your investment is crucial. Homeowners’ insurance is a recurring expense that needs to be factored into your monthly budget.
- Repairs and Improvements: Owning a home means taking on the responsibility for maintenance and repairs. Unexpected costs can arise, and setting aside funds for these eventualities is essential. Plus, you can make improvements over time to personalize your space.
- Future Expenses: Consider how your life might change in the coming years. Are children in your future? A growing family often means increased expenses, impacting your overall affordability.
A Realistic Preview:
Remember that the housing market is dynamic. Home prices in areas like Edenton and the wider region can fluctuate. By going into the home-buying process with a solid understanding of your current and future financial capacity, you’ll be much better equipped to make informed decisions. You’ll know what you are truly prepared to pay, not just for the house itself, but for the complete cost of making it your home, ensuring a comfortable and sustainable financial future.
