How Much House Can You Really Afford?

Living & Spending, Real Estate
on August 6, 2014
Housing Calculator

Housing affordability calculators are a dime a dozen online, and many potential homeowners use them as a fortune telling device. Simply answer a few questions, and the calculator presents you with a beautiful peek into the future. If only it were that easy. Unfortunately, it isn’t. Housing affordability calculators are like looking through a peephole—they don’t give a clear view of the big picture.

There are many, many factors to consider when purchasing a house. Take the road less traveled and acknowledge all the costs of homeownership before you commit to a 30-year mortgage. Here are five factors to take into consideration before deciding how much house you can really afford.

1. Percentage of Income

The number one factor a housing affordability calculator gets wrong is the difference between your gross income and your net income. These two figures are night and day, and treating them the same is a huge mistake. Your net pay—aka your take-home pay—is what your actual paycheck total is. There’s no use living like you make $60,000 a year when you really only bring home $45,000 a year. And you definitely don’t want to purchase a home on a $60,000 income when you actually bring home $45,000. You need to spend what you actually make.

This is where housing affordability calculators can mess you up. They suggest you buy based on your gross income. Because of this, the recommended mortgage takes up a large portion of your take-home pay. Consider 25 percent of your take-home pay a great place to be with your mortgage. Anything over 25 percent of your take-home pay won’t leave room in your budget for other necessities and hurt your chances for future success.

2. Utilities

Another element a housing affordability calculator doesn’t factor in is how much your house will cost you each month on top of your mortgage. Have you considered the cost of utilities? A bigger house translates to higher energy bills. You might be able to squeeze out the mortgage for your dream house, but are you also going to be able to afford the $250 gas bill four months out of the year?

3. Furnishings

Will you be able to afford to furnish your new home? If your new home purchase is an upgrade size-wise, you probably aren’t going to have enough furniture on-hand to deck out the whole house. Or at the very least, your old furniture will need to be replaced to fit the new home. Do you know what is a sure sign that someone’s in a house they can’t afford? Unfurnished rooms.

4. Upkeep

It’s safe to assume you will need to repair at least a few things a year on your home. Whether it’s replacing the roof or fixing a leaky sink, repair costs can range from a few bucks to several thousand. There is also the necessary preventative maintenance such as cleaning the gutters and having the heating and cooling systems serviced. You’ll likely spend about 1 percent of the value of your home on maintenance each year. That means if you purchase a $200,000 home, you can expect to spend about $2,000 in repair expenses beyond your mortgage and utilities.

5. Landscaping

You don’t need to have professional landscapers to have high landscaping costs. In fact, you don’t even have to have a fancy garden to require extra lawn work. The cost of a mower, weed trimmer, seeding, and mulch is enough to make anyone shudder. Add in deck maintenance and outdoor furniture, and you’re talking major expenses. And not all costs are monetary, you also need to consider the time and effort keeping up a lawn will require, no matter how large or small.

Scraping together a down payment and being able to scrape a mortgage payment together each month isn’t good enough. You must factor in the costs of living in a home, not just buying one. If you are able to take a step back and truly consider if you can afford the home you are about to purchase, you just may be the smartest person on your block.

Peter Dunn, aka Pete the Planner, is an award-winning financial mind who has authored five books, hosts the popular Pete the Planner radio show and travels around the country offering financial education. His signature wit will have you laughing as you learn. For more from Peter, visit

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