What Home Affordability Calculators Don’t Tell You

Can owning your own home really be cheaper than renting? Plugging your numbers into a home affordability calculator is a great place to start, but there are other costs that you might not have considered. Here’s how to know how much home you can really afford.

There are numerous costs and fees that go into the formal process of buying a house: big ones like your down payment, and smaller ones like an appraisal, mortgage fees, and closing costs. It’s fairly easy to plan for these expenses, and to understand how they will impact your finances.

Once your closing papers are signed, you may think that you now know exactly what your new home is going to cost you. This feeling of stability is one of the many reasons that people want to own a home—no landlords raising your rent or selling your place out from under you. It’s true that your mortgage payments are planned throughout the period of a loan but there are many other expenses associated with homeownership that aren’t factored into mortgage calculators. Here is our list of the most common ones and how you should plan for them.

Your Life and Family Expenses

A major factor to consider is your life and family plans, and the impact your plans will have on your expenses. There are several important questions you should ask yourself about your future to help you decide if you can afford a home over the long term.

• Are there large expenses or purchases you know will be a part of your life in the near future? If you’re getting married soon, you should factor in your wedding expenses.
• Are you planning to start a family? Kids cost a lot of money, often in unexpected ways. Make sure you consider how a growing family may affect your housing expenses.
• Do you have significant, planned medical expenses? For example, if you have a surgery planned, or pay a significant amount for regular medications, count those costs too.
• Do you have student loans (for yourself or a family member) to budget for? If you have outstanding loans, make sure can cover them. If you have a child that will be attending college, even 10 or 15 years down the road, that cost should be considered.
• How much new furniture and which new appliances would you need for the home? Make sure you calculate the price for any new items you’d need to make your home livable.
• How soon will you need a new car? In time, all cars breakdown. Even if you don’t plan on buying a new car now, you must factor in regular maintenance and repair costs at the very least.

Most importantly you need to figure out if any projected expenses will change your debt-to-income ratio to a point where it would be difficult to pay your bills. So try including that cost in your calculations to make sure you can still afford everything that you need. Then develop a few other scenarios and project how difficult maintaining a good debt-to-income ratio (around 43%) could be.

Your Income and Work

When you applied for your mortgage, your salary and job tenure were most likely factors in the price of home you can afford. But what will you do if you are laid off, or if your employer wants you to relocate?

Lenders know that the stability of your current job, including the health of your company (or industry), can factor into the long-term viability of your particular position—and therefore your ability to make your loan payments. Consider your future income potential and career plans but don’t count on a raise that you don’t yet have and don’t forget to consider about worst-case scenarios.

The Location and Features of Your New Home

If you are moving to a new area, or you’re becoming a homeowner in your area for the first time, you may be surprised by some of your new expenses. New potential expenses include:

• Property tax increases, both immediately and in the near future.
• Increases in your HOA fees, and costs like a special assessment.
• A change in your commute costs, including the need for a car or a second vehicle.
• Larger homes may cost more to heat or cool, and you may have new utility bills like water that you did not pay as a renter.
• If you live in a cold climate, do you already own a snowblower, or will you need to pay for a snow removal service?
• If the home has a large yard, do you have the right kind of lawnmower to maintain it? Will you have time to keep up with all of your landscaping duties, or will you need to hire help occasionally?

Maintaining Your New Home

Even if you buy a brand new, custom-built home, the cost of maintenance is something you need to consider. When things wear out or simply break, you will no longer be able to call the landlord for a replacement—it’s all on you. Having some savings is important, but here are some additional ways that you can protect yourself from surprising home maintenance bills:

• Consider purchasing a home warranty with your new home: These affordable protection plans can help you handle big problems with ease, such as the failure of your HVAC system, and they can also cover smaller bills like a refrigerator repair.
• Pay attention to your home inspector’s findings: Make a plan to deal with any issues that your home inspection uncovers, both long and short term. Your inspector’s report can serve as a way to prioritize the maintenance on your home, preventing more expensive repairs in the future.
• Make sure that you have the right insurance coverage: Do you have the protection you need from things like weather-related damage or a plumbing failure? Check with your agent to make sure that your coverage is adequate and your deductibles are affordable.

Expect the Unexpected

Buying a home is one of the biggest investments you will ever make, so be sure to protect yourself. If you are starting the home buying process, especially if you’re a first-time buyer, take the time to do some research on these hidden or often-unconsidered expenses.

Call contractors, ask your friends and neighbors, and get some sample quotes. Including these potential costs in your considerations—in addition to your affordability calculations—will ensure that your home buying budget is as accurate as possible.

If you are ready to make an investment in your future, contact a Pennymac Loan Officer today!