Apr 23 2009
I’m going to figure out how much I think we can afford, which I can almost guarantee you will be a lower amount than what the lender will say we can get.
We want to make sure to have enough money to save with each paycheck for things like home improvements, maintenance, saving for another car someday, saving for travel, furniture, Johnny’s college and all the other things we could want.
Our current housing expenses:
- Rent $770 (this will go up to $790 in June. If we go month to month on our lease, it will be an additional $50 per month).
- Laundry $30-40 per month
- Electric $80 is the “budget bill” amount
- Renter’s insurance $105 annually, or $8.75 monthly
- Total: About $920/month on housing-related things. This figure is with our new rent increase and not with the month-to-month lease.
With those expenses we live comfortably with room to meet our savings goals. We don’t feel deprived. If we want something, we budget for it and buy it.
I do think we can increase how much we pay for our overall housing costs. You see, right now, we’re in “save for down payment” mode.
Once we actually get a house, we won’t need to save for a down payment, since that payment would have already happened, ya know?
I think we can have our overall housing costs at as much as $1,300 per month and still be reasonably comfortable. Here’s what I’m including in those housing costs:
- Mortgage (principal and interest) $525
- PMI $60*
- Property taxes about $250 per month depending on municipality and assessed value. Insanity, I tell you.
- Homeowners insurance $50/month? Help me out, what number should I include in my preliminary estimate?
- Gas & electric $250/month with a “budget bill” plan. This will vary by house. I will request to view utility bills for summer and winter for houses listed for sale. Pittsburghers, am I on target? I do know that winters can produce $300-$400/month gas bills in an older house around here.
- Water & sewer $50
- Trash $15
- Maintenance $100 [Is this reasonable? We’d set aside money each month to put toward maintenance, so it wouldn’t necessarily be spent each month. Some months would be more, and of course we have an emergency fund to cover crazy things like an exploding water tank or something]
- What else?
Total = $1,300
* When I spoke with a loan officer yesterday, I was told that we qualify for an FHA or a conventional mortgage. With the FHA, we could expect to pay around $40 per month in PMI and around $60 per month with a conventional, based on her calculations.
If we can get a mortgage at 5 percent interest, we can afford a house around $100k to $105k, assuming my assumptions are correct. This will vary, depending on the specific property taxes of the municipality and the utility costs.
I told the loan officers that I thought $105k was our upper limit, and they approved us for the amount. They told me that we could probably qualify for a lot more, but I wasn’t interested to find out how much. No need to be tempted, since I know what we can comfortably afford — not them. And, I wouldn’t want our real estate agent to know we qualify for more either. Don’t show me what I can’t afford, lady!
So ah…to all the people who say when you rent, you’re throwing away money, I say look at how much money you’re throwing away when you buy. Mortgage interest, PMI, property taxes, more expensive homeowners insurance, closing costs, maintenance and all the extra utilities you’re on the hook for … goodness. Seems like you’re “throwing away” just as much if not more with a mortgage in the early years. The benefit is that equity that someday you might be able to see again, if things go right.
One final point: If we increase our monthly expenses by $400 or so, as I’m predicting we might, we’ll need to increase our emergency fund by $400 per month as well. For a six-month emergency fund, we’d need an extra $2,400.