Not Made Of Money

Owning your own home is supposed to be the American dream.  However, for people who’ve bought a home that they can’t afford, it’s been more like a nightmare.  I know you hear people say that now is a great time to buy a home if you can afford it.  Maybe you’re wondering, though, how to know if you can afford it.  A lot of factors have to be considered before you make this huge decision.
 
Your first consideration has to be your ability to make the house payments that go along with purchasing a home. If you were to buy a house, how much would your payments be?  Don’t forget to factor in pesky things like escrow.  Could you comfortably make those payments every month?  A good rule of thumb states that your house payment shouldn’t be more than 25% of your monthly budget.  Although a little deviation from that norm isn’t always horrible, you should be careful not to commit to payments that will present a hardship to you.
 
As long as you’re analyzing your potential mortgage payment, don’t assume that if your mortgage amount is the same as your current rent you’ll be okay.  As I mentioned before, you’ll want to include escrow payments in your analysis. In addition, you should take a look at the utilities you’ll be paying. If you’re renting now, some utilities might be included in your rent payments. However, you’ll be responsible for all of them once you buy a house. Lastly, you should find out if there are any homeowners association dues required with your potential new home.
 
Another big factor in being able to afford a house is the down payment.  Although there are lots of loans out there that allow homeowners to forego making any down payment, the recent mortgage crisis has certainly shown that buying a home with no down payment isn’t always a good idea. In a perfect world, you should have a down payment equivalent to 20% of your home’s worth. This down payment will allow you to avoid paying private mortgage insurance (PMI) premiums.
 
Finally, you have to weigh the burden that buying a house and making its subsequent mortgage payments will place on your family’s budget. Will buying this house completely empty your savings account?  What will you do when the hot water heat breaks? Or you have a medical emergency?  If it takes every penny you have to get into and stay in that house, you may not be able to afford it. In these cases, it might be advantageous to wait a bit longer to purchase a house so you can pad your savings account first.
 

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