The costs associated with housing undoubtedly consume a large part of your monthly budget. Basic affordability guidelines do not always take your unique circumstances into consideration when determining how much you can afford. When trying to decide how much of your monthly salary you can dedicate to housing costs, consider these areas before pursuing any new properties.
What You Are Spending Now
One of the easiest starting points is to look at what you are currently spending. This calculation should include the amount you spend on your rent or mortgage, as well as other mandatory housing costs, such as insurance and utilities.
You can compare whether the amount you are paying now is generally affordable based on your current income and other debts. If you are struggling now, you should work to lower your housing costs regardless of any other calculations. If the current expenses are affordable but do not leave you a lot of room, stay at or below your current cost levels. Otherwise, if you have room to add comfortably to your housing costs, then consider the following areas to decide your next steps better.
Savings and Emergency Funds
Moving into a new home brings with it a set of one-time costs. Commonly, this includes deposits and down payments. Additionally, costs associated with packing and transporting your belongings should be included. These funds must be available to cover these expenses, ideally without taking on unnecessary debt.
It is also important that you have extra savings that can serve as an emergency fund. An emergency fund should be able to cover basic living expenses, such as housing payments and other bills if you lose your current source of income. In fact, some banks will need a minimum amount of funds to be in savings as a condition of mortgage approvals.
If you do not have any savings to manage these costs and expectations, you should reconsider your move. It is wise to direct any additional funds you can towards your savings goals.
What Your Future Housing Expenses May Look Like
Moving will have an impact on the amount you budget for rent or mortgage payment. It is easy to forget that other associated housing expenses will also change. For example, a larger home may take more energy to heat, leading to increased utility bills. The cost of insurance may also vary based on the size of the home as well as its physical location. Even costs associated with commuting to work can change.
It is important to look at these areas before making a move. Forgetting these changes can make a home that initially appeared quite affordable to become a budget-buster suddenly.
You should now have a better idea as to whether pursuing a new home is actually affordable. If so, you can continue down the path. If not, you now have some guidance to help guide you down the road that will ultimately end in a new home for you and your family.