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Can You Afford That House?

According to the Federal Housing Administration (FHA), depending on the current debt ratio, most people can typically afford to pay 29 percent of their gross monthly income for mortgage payments. For example, if you earn $50,000 annually, then your monthly income is $4,167. Twenty-nine percent of that is $1,208.
Although this provides you a starting point for budgeting for homeownership, don't forget the other housing expenses you'll incur when determining if you can afford the house you want to buy.

Utilities
The most obvious of additional housing expenses are utilities—gas, electricity and water. But don't forget about telephone, trash collection, and cable or satellite bills.

Taxes
As a property owner, you are responsible for property taxes. The rate will vary from town-to-town. In Greenville, for example, the combined city and county tax rate is $1.26 per $100 Valuation. That means for a home in the city limits of Greenville with a tax value of $150,000, yearly taxes will run approximately $1,890. To get a general idea on how much the tax bill will be for a property, ask your real estate professional for a copy of the tax parcel card.

Maintenance
With homeownership comes upkeep. You'll want to set aside a small amount each month to pay for those "rainy day" repairs such as painting, plumbing, and carpet cleaning. The amount you budget will depend on the age of the home, as older homes tend to require more repairs because the appliances are older and may not be under warranty. Don't forget about seasonal maintenance, including lawn care, window cleaning, pest inspections, and gutter cleaning. And if you live in a home long enough, there are inevitable repairs—the roof, furnace, and major appliance replacement.

Insurance
To protect yourself financially, in case something happens to your property or its contents, you'll need homeowners insurance. Depending on the type of coverage and your area, the costs for homeowners insurance each year can be anywhere from a few hundred dollars to thousands of dollars. And, if you live in an area that has high risk for flooding, you may need supplemental insurance. In addition, if you want broader or higher coverage for your collections or big-ticket items such as computers, jewelry, and artwork, you may want to purchase an endorsement/rider to your homeowners policy.

Remodeling/Upgrades
Whether you buy an older home or have one newly-built, there are going to be improvements you want to make. So, you need to consider remodeling and upgrading costs as well when determining your housing budget.

Consider: the average cost to remodel a 25+ year-old bathroom in 2004 was $9,861, according to Remodeling Magazine's annual Cost vs. Value Report. This includes materials, labor and subcontracting fees.

Even the cost for paint, light fixtures, window treatments, flooring and decorative cabinet knobs can begin to add up. However, having a home improvement fund will help lighten the load.

Be sure to speak with a local lender who can pre-qualify you and establish a target price range for you new home. Your real estate professional will typically be glad to recommend someone to help. By determining all the costs associated with homeownership, you can go into your home search with a reasonable price range that will allow you stay within your budget.

By Richard Lane, Broker In Charge
Prudential Prime Properties

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