Can I Afford This Lot?
The 30% Rule
As a rule of thumb, your housing costs should be no more than 30% of your household’s gross income*. This includes mortgage payments and utilities like electricity, water, sewage, and internet.
* Gross income is the amount your entire household earns before taxes, retirement account investments, and other pretax deductions are taken out.
Other Expenses to Keep in Mind
It’s also important to consider your other financial obligations when deciding how much of your income to spend on housing. You may have other expenses, such as student loans or transportation costs, that affect your ability to pay your housing bills. If you allocate too much of your income to housing expenses, you might struggle to meet other bills or put money into savings.
Important questions to consider
· Income: Are you relying on one or two incomes to pay the bills? Is your job stable? Can you easily find another position that pays the same, or better, wages if you lose your current job? If meeting your monthly budget depends on every dime you earn, even a small reduction can be a disaster.
· Lifestyle: If needed, would you be willing to change your lifestyle to pay your mortgage? Would you be OK with fewer trips to the mall and/or a little tightening of your monthly budget. If at this moment you can’t make any adjustments, you might want to wait a bit longer before entering the long term commitment required by a mortgage.
Additional Housing Expenses
While the mortgage is certainly the most considerable financial responsibility of homeownership, there are many additional expenses, some of which don’t go away even after the mortgage is paid off. Here are some important expenses to consider:
Property Taxes: Typically, 1.81% of your home’s value annually.
Home Insurance: Average cost around $1,900 per year.
Maintenance: Budget for repairs and replacements.
Furniture and Decor: Consider costs for furnishing your new home.
[An instructional publication by Cayetano Development, LLC. NMLS # 1667528]
