How Much Can You ‘Really’ Afford to Spend on a Home?

Building a housing budget that won’t make you go bust

(Image: istock by Getty Images)
(Image: istock by Getty Images)

While a survey by Merrill Edge finds that 94% of Americans do not regret what they’ve spent on real estate in the past 5 years, and feel the debt they’ve taken on for homes and home improvement were worthwhile, it’s important to keep spending on housing at levels that don’t stress your overall financial life plan.

[Related: How Much Do You Need to Make to Buy a Home?]

Financial experts say we should spend around 30% of our after-tax income on housing, but for many of us that number is considerably more.

“There is not a “one size fits all” when it comes to buying a home,” says Glenda Gabriel, neighborhood lending executive at Bank of America.      

“Asking yourself, ‘how much should I borrow?’ instead of, ‘how much could I borrow?’ is an important distinction. Rather than focusing on the largest amount you could possibly spend using a mortgage or home equity line of credit, focus on the amount that comfortably fits your budget,” she adds.

Gabriel also points out that working out a monthly household budget, factoring in all of your expenses and debt commitments can be helpful when it comes to helping determine what’s the right amount to spend on real estate.  Merrill Edge has a tool called the Affordability Snapshot that can be helpful.

As for first-time homebuyers, Gabriel says they need to be prepared for the following unexpected costs.

  • Know how much cash you’ll need at closing. When you buy your home, you will need to pay a down payment and closing costs. The down payment typically varies from 5-20%. Putting less than 20% down will typically require you to pay for private mortgage insurance. Closing costs could be about 3% of the total loan amount, and will include charges such as loan origination fees, title insurance and appraisal fees.
  • Budget for private mortgage insurance. For a conventional mortgage, this is typically necessary if you don’t put down at least 20%. Make sure you know how much this cost will be and factor it into your monthly budget.
  •  Research utilities. If you’re upsizing, moving into a newer or older home than you’re used to or located in a climate that’s hotter or colder than you’re used to, ask your real estate professional to find out what the home’s energy bills have typically been. This can prevent being surprised by a higher utility bill than expected. If you’re moving into a new community, find out about water costs as well.
  • Don’t forget miscellaneous expenses. Be sure to budget for moving expenses, as well as additional maintenance costs. Newer homes tend to need less maintenance than older ones, but all homes require upkeep. If you’re considering a condo or a home with a homeowners association, also, remember to include monthly dues in your budget.


10 Responses to How Much Can You ‘Really’ Afford to Spend on a Home?

  1. Pingback: How Much Can You ‘Really’ Afford to Spend on a Home? | TOUCH 106.1 FM | BOSTON, MA

  2. Pingback: Buying A House Cash Closing Costs | Rates for CPA Services for SMB

  3. Bill Shaughnessy says:

    To save money on your closing costs, the CFPB recommends shoping around for title insurance. RE agents, lawyers and lenders may have recommendations but the ultimate decision on who to use for title insurance is up to the home buyer or in some cases the home seller. Check out Entitle Direct. We cut out the title agent so we are able to save clients up to 25% on their title insurance premium! Get a free quote online in seconds: http://www.entitledirect.com

  4. Pingback: Asking Bank To Pay Closing Costs On Foreclosure | Rates for CPA Services for SMB

  5. Pingback: Cost Of Buying A House With Cash | Rates for CPA Services for SMB

  6. Pingback: Buying A House Title Insurance | Short Sale Houses

  7. Pingback: How Much Closing Cost When Buying A House | Rates for CPA Services for SMB

  8. Pingback: Buying A House Apraisals | Rates for CPA Services for SMB

  9. Pingback: Will The Bank Pay Closing Costs On A Foreclosure | Rates for CPA Services for SMB

  10. Pingback: How Much Does A Commercial Real Estate Appraisal Cost | Rates for CPA Services for SMB

Leave a Reply

Your email address will not be published. Required fields are marked *