I recently wrote this first-time home buyers guide article. In the article, it talks about determining how much money you are willing to spend on a home. I want to dive into this a little more, though, in this article than I did in that article. So, if you’re thinking “How much house can I afford” read on to learn more!
This topic has been on my mind a lot lately. Partially because replacing the windows in our home was a bit of a shock to the pocketbook, and more. There is more to affording a home than the mortgage payment.
Why this topic is on my mind
There are a number of people in my life currently looking to relocate homes. Three houses on our block have turned over in the last year to new owners. It is clear that people are taking advantage of low interest rates, along with having a demand for more space at home since some of us have been home a lot more.
There are a couple of stories that I’ve heard that have really just stuck with me, and make me nervous for where things are going. Let me tell you one of them:
A neighbor, let’s call him Matthew (not his real name), told us one afternoon at the end of the driveway that he was listing their home. They had lived in it and their kids were getting a bit older. With interest rates as low as they have been, Matthew decided that his family could afford to buy a bigger “dream home.” He showed us the listing and we saw the listing of his house here in our neighborhood.
Matthew upgraded to a home with almost 2,000 more square feet than the house in our neighborhood. The home he sold, based on my review of the listing, appeared to be completely remodeled from top to bottom. The house he was purchasing didn’t look like much had been done, except for paint in a few rooms, for 20 years (i.e. it looked a bit dated).
I know nothing about Matthew’s financial situation. He was a neighbor in passing. However, from the outside looking in it was really easy to be concerned that Matthew never asked himself “How much house can I afford.”
Buying a Home is Not Just About the Mortgage
That’s right. Buying a home is not just about the mortgage. When considering how much house can I afford, it’s important to think about a much bigger picture. Paying the mortgage each month is only a small part of being a homeowner.
It’s very easy to get caught up in inching your mortgage budget up or looking for a house based on the amount you’re pre-approved for. It’s important, though, to step back and think about the big picture of what you want your life to look like and if the house fits within that.
Personal Finance Rule of Thumb On How Much House Can I Afford
In personal finance, there is a rule of thumb that a mortgage payment (with homeowners insurance included) be less than 25-30% of your monthly take-home pay and that all debts not be over about 40-45% of your take-home pay.
It’s important to think about both of these things, because if you have student loans, a car payment, maybe some credit card debt, pushing the 30% on a mortgage may put you in a situation where you may struggle. These thresholds, though, aren’t the only thing to think about when deciding ‘how much house I can afford.’
5 Perspectives that Might Shift Your Thinking on Affording a Home
- Can I Afford to Replace the Windows?
This topic I mentioned earlier. We recently replaced a lot of windows in our house. We didn’t have to replace every single one (the previous owners had replaced a few), but the vast majority of them. We got a quote from three different places, and I’d be lying if I didn’t say my heart skipped a beat after getting the first bid for the job.
In fact, afterwards I texted a neighbor “It’s been nice being neighbors; we have to sell our house and move into a cave with no windows.” Luckily, we were able to shop around and find something a bit more reasonable, but by reasonable, I still mean a hefty bill.
If you do an internet search, you will get a price ranging from $500 to $1,000 per window. That lower end is going to be if you’re willing to install the windows yourself. It is my recommendation that you walk through the house, add up the windows and multiply that by $1,000.
Even if the home doesn’t need windows the day you are looking at it, I’m going to argue that you are going to spend that amount on the windows. If you’re not buying new windows, you’re replacing screens, having the caulking re-done, buying new window treatments, etc.
If you aren’t tired of hearing stories about buying windows, check out this article about how 0% interest isn’t always zero percent.
- Can I afford to furnish the home to my liking?
I recently previewed a home for someone else. The house was in an ideal neighborhood for them, but more square footage of living space than they were really looking for. They wanted me to check it out anyway. As I was walking through the home, the money signs kept popping up in my head.
For instance, as we walked into the owner’s suite, I thought that the room was really large. That room specifically would have looked very empty with only a bed, dresser, and maybe a side chair – likely the furniture this person has in their current space. But I thought the same thing in the office space, the downstairs living room, it had an extra bedroom, so it wasn’t just a piece or two they would need to acquire for the home to look furnished. I’m all for finding some furniture third-hand, but I’m not sure that is an interest of the person I was looking at the home for.
Some may like minimalist design, but also looking house poor – just having rooms sitting empty because we can’t afford the furniture to fill it is a sign that the house may not be a good fit. So, while house shopping, take stock of the furniture you have, what rooms you would be able to furnish and what pieces you would need to acquire. Do a little browsing to make sure you can find pieces to fill those spaces that you can fit into your monthly spending within a reasonable period of time. You don’t have to have the house furnished day one, but living in a house unfurnished for 5 years while saving up is likely not in your best interest either.
- Can I afford to spend the time or money needed to keep the place clean?
Just like with the amount of furniture the home would have needed that I previewed, I was also thinking about the bathrooms that would have to be cleaned regularly, the floors, etc. Keeping a home clean can be a full-time job almost. Living with two small humans at home this past year, I don’t know how much time I’ve spent doing extra clean-up and cleaning.
The more square footage a house has, the more time or the more money it is going to take to keep the house clean. I did an internet search and it gave about an hour per bedroom as the average amount of time it would take to clean a home (i.e. a one bedroom – one hour, two bedrooms – two hours, etc.). I know we are not quick, and our kids mess things up behind us so it takes us longer, so think about your time or how much it will cost to have the house cleaned when you ask yourself “how much house can I afford.”
- Can I afford the updates to the home that I want to make in a reasonable time?
If you follow MPower Co on Facebook, you know that we have been doing home remodeling projects during the pandemic. Since we’ve been home we have used these projects as a way to keep ourselves busy. We feel a lot of accomplishment in what we’ve done and it’s added meaning to our home. This may not be for you! You may be in the boat of buying a brand new home where you can pick out certain finishes and it’s done.
However, at some point, you’re likely going to need to replace carpet. Your style may change and you want to replace a backsplash, or a vanity may give out and need replaced. On the other hand you may be like us and buy a home with a lot of really dark, hunter green carpet, different wall-paper in every room, and go into the home knowing that you’re going to be doing a lot of cosmetic work to the home.
If there is anything I’ve learned from this home, it’s that home remodeling is ALWAYS more expensive than you think it’s going to be. The calculators on the internet are always under. There are always going to be surprises – like when we had to replace the window in our master bathroom when we updated that space, or needing a plumber same-day when emergency water valves don’t work. If the house has a lot of cosmetic work, think about how you’re going to work that into your spending plan while maintaining the life outside of your home that you want.
If the house is going to take all of your fun money for updates and repairs, think twice before buying. It may be a sign that it’s not the right home.
- Can I afford the maintenance?
Home maintenance can get expensive quickly. There is yard maintenance, having grout sealed, having the air conditioners and heaters maintained, etc. There is having the outside repainted or power-washed (depending on the type of material the home is covered in). Maintenance is not pretty but it is so important to maintain the integrity of the home. If seeing about maintenance is not of interest, perhaps it’s a very good sign that home ownership isn’t quite right at this point in time.
Final Thoughts on How Much House Can I Afford
Buying a home is an important decision to get right. Finding the happy medium of finding a house that fits your needs and some wants is critical to being in a home that will work long-term. However, it’s key to remember that affording a home is not the same as affording the mortgage cost.
There is a “dream home” for all of us no matter the size or cost of the home. A dream home is not what they used to have on HGTV every year (do they still do a show each year?). A dream home is somewhere we can come home to, doesn’t burden us with more than we can chew, and share with people we love.
Take a Financial Education Course
If you’re ready to prioritize buying a home, but aren’t quite there and could use some guidance, taking Richer Retirement is a must. Richer Retirement is MPower Co’s online course that is authored and instructed by Dr. Thia Crawford. This is a financial course that will empower you to make good financial choices now, including how to save and afford a home that meets your needs and some of your wants, that will last us up and through your golden years. Learn more about Richer Retirement here.
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