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If you’re going out on your own for the first time, you may be unsure of how much you can afford for rent or a house payment. Fortunately, there are some tried and true methods for figuring out how much you can afford in monthly payments.

The last thing you want is to buy the home of your dreams only to discover you’re so house poor that you can’t afford to fix it up or do anything other than sit in it as it falls around you — or worse, sell it at a loss.

It makes more sense to calculate overall costs beforehand and make sure you can afford the house you’d like to buy and all the hidden expenses that go with it. Here are six tips to help you do it.

1. Spend a Specific Percentage of Your Income

Experts recommend spending between 25 and 30 percent on home expenses. However, you have to remember you’ll have other costs in addition to just your mortgage or rent. You’ll have to pay homeowners or renters insurance, upkeep costs for a home and possibly property taxes.

If your other costs are extremely low — such as if you don’t own a vehicle — then you’re probably safe to go to the higher end of the spectrum. However, if you have additional costs, it’s safe to stay on the lower end. Keep in mind that extra luxuries like granite countertops and new appliances are elements that make listings more expensive — but you can always save up to put these in any home down the road.

2. Plan for the Unexpected

One thing is sure — if you own a home, you will have an unexpected expense at some point. Perhaps the roof will leak and need to be replaced, or a furnace will go out. Whatever the unexpected cost, it can be overwhelming if your budget is already stretched thin.

Before you purchase a home, have an emergency fund set aside to help you cover any unexpected costs. This allows you to remedy any catastrophes without losing everything.

3. Figure Only What You Earn Today

It’s tempting to look ahead and think you just got started in your career, so surely, you’ll earn more money soon. However, it’s best to base your living decision on how much you make today, and nothing more.

If you do end up getting bonuses or raises, you can either throw that extra money into savings or pay your rent or mortgage ahead of time. Never count on money you don’t have to cover your living expenses.

4. Create a Mock Budget

Still unsure if you can afford that rent or mortgage payment? Sit down and create a mock budget, listing out all your expenses. Include every single item you can think of, including costs for a pet you own or maintenance on a vehicle. This helps you understand how much you’re spending on fixed costs like bills and payments every month, so you can see how much is left over to work with. One popular budgeting method is the 50/30/20 rule, for example, which recommends spending no more than 50 percent of your income on fixed costs.

Sites like Dave Ramsey offer free budget worksheets that will give you a general idea of the categories. You can then ask family and friend what they pay for services such as electricity and trash pickup. While the numbers won’t be exact, you’ll get a good idea of what you can and can’t afford. You may even find some areas where you can cut expenses.

5. Get a Roommate

If you live in a major city, it may be impossible to buy or even rent a place on your own. For example, in New York City, the cost of a median home is $1.6 million and in Denver, Colorado, it’s $363,984. Rent is commiserated with the price of housing in general.

One thing you can do to get out of your parents’ basement even if you can’t afford a place of your own is to find a roommate to share expenses. This reduces everything by half, including rent and utilities. Just make sure your roommate is reliable and signs the lease alongside you – you don’t want to be on the hook for costs they were supposed to bear.

6. Use a Calculator

Are you worried your calculations are off? You can also use a mortgage calculator to make sure you aren’t spending more than you can afford. A useful calculator will consider your income, monthly debts — such as a car payment — and how much down payment you can afford. It will then give you a figure of how much house you can afford, as well as the payment.

This allows you to see if you can afford to buy a home, but it also gives you that monthly number in case you prefer to rent first. A calculator is just another tool to make sure you aren’t overspending.

Final Words About Your Salary

You’ll be surprised at how far you can stretch your salary to make a house payment, but that doesn’t mean you should.

Financial advisers recommend keeping your housing costs to 30 percent or less for a reason. If you want to ever go out for dinner, meet up with friends at the local bar or take a vacation, keep your housing costs within an ideal range. It’s better to go with a smaller place to start, then work your way up to the house of your dreams than to stress over how you’ll make your mortgage or rent payment every month.

About the Author:
Holly Welles is a real estate writer passionate about helping fellow newbies manage their finances. You can read her latest tips on real estate and home improvement on her blog, The Estate Update, and follow her on Twitter @HollyAWelles.

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