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How Much Can I Afford When Buying a House?

by Jake Cardenas | December 23, 2017


Buying a house can come with some surprises when you look at the expense sheet. There is more to it than looking at the sticker price and preparing a meeting with a mortgage broker. Several factors impact the price of the home itself, but you have to take into consideration things like inspections, repairs, maintenance, reserve funds, utilities, and expecting the unexpected.

What’s more is that you also need to keep these things in mind when looking at your own finances and your own lifestyle. If you aren’t savvy with do-it-yourself repairs, you’ll need to figure out the average local costs for services like plumbers, carpenters, roofers, and electricians. You become responsible for every problem that takes place under your roof.

Being able to handle the down payment and the subsequent mortgage payments does not mean that buying that specific home is a good idea.

Consider the Mortgage

One of the biggest concerns you’ll have when purchasing your home is the cost of the mortgage. The rates can vary wildly from location to location, and who you are can play a significant part in determining how generous (or how stifling) the mortgage ends up being. Something as simple as a damaged credit score can sink your application.

But, let’s assume that your application is solid. There are still a lot of components out of your control. This is such a contentious and complicated subject that there are dozens of mortgage calculators available online which can tell you, down to the number, what to expect based on a certain set of variables. Even the best calculator with the best estimates you have available might give you a result that differs from when you finally sit down with a broker or bank.

When you are investigating the potential mortgage payment you’ll need to contend with, it is best to keep the golden rule fresh and at the forefront of your mind: try to keep your mortgage payment to less than 1/3rd of your joint income. Extra points if you can comfortably afford the payments on just one income.

Don’t forget that getting a mortgage also means getting homeowners insurance. The cost for this varies wildly between states and different kinds of properties. A good number to work off of is the national average: $1,083 a year.

Inspections (and Maintenance)

You need to deal with the gritty details when you’re about to buy someone’s home. This remains true even if you’re buying the home fresh from a suburban expansion. While trust is essential between you and the property owner, it’s equally important to protect yourself. Hiring a licensed home inspector can be expensive (between $200 and $500) but can uncover thousands of dollars in problems that you didn’t know about before.

These problems can make a purchase that seems like a good decision on paper, a bad idea. Some homes were built with antiquated building practices that will need to be replaced and brought up to code if even minor repairs are required. Houses with septic systems might need extensive reworking. Shoddy electrical work might require that the walls get ripped open to bring everything back to a modern standard.

Many owners use deferred maintenance, the act of delaying repairs to save costs, as a means to walk away with a more significant profit after selling their property. A lot of these issues can become conditions in the actual deal, where you expect the owner to fix these problems before you put your name on the dotted line. Other issues might be problems that begin following you after purchase. When you buy a home, you need to invest money in a fund that will tackle these obstacles before they become bigger problems down the road.  

Buy vs. Rent

Sometimes, it might be better to rent. Figuring out the financials on this is a nightmare; the sheer logistics of juggling all the numbers is a herculean task. Luckily, there are websites that take the manual work out of the equation for you. By using a rent vs. buy calculator you can figure out just how long you’d need to live on a property before it becomes cheaper to buy it.

This is important. If you envision leaving the area after a few years, there is no reason to buy a home if renting it would be cheaper. Renting sacrifices control but provides you greater financial security. A proper rental agreement with ideal landlords can save you from repair costs, renovations, disasters, and more. Even with rising rental rates it might be significantly less than the costs of a mortgage, taxes, insurance, and repairs

If you’re purchasing a condominium, don’t forget to incorporate the expected reserve fund commitment. A reserve fund is a joint fund maintained by unit owners that is meant to tackle major repairs and renovations in the building. You can adapt this concept to a standalone home, although this is more commonly referred to as an ‘emergency fund’. Always have money available to deal with sudden repairs.

With all these costs to stay on top of, you could use a bit of relief. Did you know that realtors charge a commission fee on your home purchase? These fees can become exorbitantly high and undoubtedly provide another source of stress when considering your expenses. Many realtors charge 6% in commission to sell a home.

Don’t panic. Make putting pen to paper a stress-free process. If you buy your house through Clever, our partner agents can rebate up to 1% of your commission to help you purchase your next home (only in states where rebates are legal). If you’re looking to sell a home, Clever lets you list your home for a flat fee of $3,000 if the home is less than $350,000, or 1% if the home is more expensive.

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For homes over $350,000, a 1% will be charged

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