How Much Home Can You Really Afford?
It is an increasingly popular question for good reason, “how much home can I really afford?” Or another common question is how much money should you really be spending on a home compared to your amount of income?
Arriving at this answer is no open and shut case and one size fits all sort of thing. It can be a little bit stressful to come to the conclusion on what you really should be paying for a home. One reason is that each buyer is going to have their own personal preference for non-negotiables in a home and how much they are willing to put towards that home as a percentage of their overall income and be happy and comfortable paying it.
For a general piece of advice on living comfortably, most financial experts have come to a factor of spending no more than 30% of your take-home income on housing costs. In many cases, this can be very good advice and there’s a reason why so many real estate experts have come to this conclusion. Here is why.
How taking too much of your income for home expenses could be dangerous
If you feel you can handle giving more than 30% of your take-home income to mortgage payments it could be possible at some point to fall behind on your payments. There’s also a high probability of falling behind on other bill payments. This is why so many financial advisors arrive at the 30% number.
The not-so-distant recession caused by a housing bubble of sorts in 2008 opened many of our eyes to what it looks like to be more responsible with finances when it comes to paying for housing. It was much easier to obtain a mortgage as requirements were not nearly as strict and very easy for buyers to take on much more homes than they could realistically afford to cause massive foreclosures and many homeowners ending up in homes where they owed more money than the property was worth.
This is not a predicament any homeowner wants to be in. You want to make sure that you are underestimating a payment you can comfortably afford to prepare for any surprises that come your way. This helps you to most likely be able to continue to make payments even when times are a little bit tighter.
30% for housing costs should include more than just your mortgage payment
It may seem like housing costs would only mean your mortgage payment, but there are other items that fall under this category that are mandatory to pay so that you do not lose your home. These should be included within this 30% threshold. These costs include property taxes, homeowners’ insurance premiums, any HOA fees, and any private mortgage insurance.
Those who want to be extra diligent in making sure they are keeping their housing costs affordable also include the cost of routine and well-known needed maintenance on the home. This can include items like landscaping, upkeep on HVAC, and other items that you know will need to be taken care of on a regular basis to maintain your home.
Many people found themselves without emergency savings when the pandemic hit
One reason it is such a good idea to stay conservative with your housing cost allotment is that it allows you more freedom to put funds into savings accounts. When the pandemic hit it surprised many Americans and several found themselves without the funds to pay for daily needs. Some went just a few weeks or a month without being able to go to work. You want to make sure that you have a rainy day fund to help sustain you for any life emergency that catches you off guard. Being more conservative with the amount you spend on housing costs will help you to do so.
For more information on purchasing a home in Granbury Texas and surrounding areas please contact us anytime.
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