How do I know what I can really afford?
Q: How do I know what I can really afford?
In a perfect world, we’d all like to be able to not ever have to worry about the monthly costs associated with owning a home… but if you’re honest, whether it’s paying rent on an apartment or paying a mortgage, we will all usually have that type of payment for at least the next 30 years. The real answer is if you stand back just long enough to not think about status or keeping up with the “Joneses”, what do you feel comfortable paying each month?
I’m going to sound a bit like an “old fogey” right now, but please, indulge me – – – I was around during the mortgage crisis, and have learned a few things that I’d love to pass along. Take my advice or not, it’s up to you…but at the least I ask that you read and consider it.
The 25% “RULE”
You know yourself and your spending habits pretty well, and if you’re comfortable only paying as much as you currently pay for rent, consider that as your payment baseline.
LOOK AT YOUR MONTHLY BUDGET – scrutinize your current financial situation. A good rule of thumb is that your monthly mortgage payment should not be more than 25% of your monthly AFTER TAX income. So, if your paycheck says you earn $2,400 per month in wages after Uncle Sam gets his part and any other mandatory deductions (ie: child support, etc.), you shouldn’t be paying more than $600 for the mortgage or rent payment every month. You won’t feel stretched and you’ll still be able to meet up with a few friends for happy hour too!
Another factor – two incomes
If you are considering buying a home with another person, base your monthly payment on only one of your incomes (and yes, go ahead and use the bigger income if you want). But I caution you on buying that great big castle on the corner!!! The bigger question is do you REALLY need that? My theory is that if more people had done this back in the early 2000’s, we would never have had a National Mortgage Crisis.
Here’s why: If by some very unfortunate circumstance one of you lose your job, you will probably have to dip into the money you saved from the second income, but you won’t have to really worry about losing the house for a while (I hope). If the monthly payment was based on two incomes, the boat starts to sink – QUICKLY. And if it’s sinking quickly, the relationship (which is always far more important than the building) becomes strained, there are disagreements about money and you may be reduced to peanut butter sandwiches for dinner – not pretty!!! What happens if you have children to care for – or someone gets sick and all of a sudden that second income is just not there? Sit back and consider this one last question: Is all that strife worth it if you end up living in an empty house or worse, losing out on the best relationships in your life. ‘Nuff said.
Please, consider this very, very carefully….
Build some equity in the first home you buy, make some improvements, and then, if you need to move on, hopefully you will be moving on to a bigger or better place because you will have made a profit! No one has a crystal ball and things change all the time with employment, life situations and the ability to make payments …. So, be wise! And you never know, maybe with all that money you saved, you’ll be traveling the world and creating memories outside the 4 walls that will be better than anyhing you could have imagined.
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