Having the biggest and best home on the block sounds great – but not if it is at the expense of your life and monthly finances. Be smart about your budget and avoid buying a home at the very top of your pre-approval value, which might lead to cash flow issues and being “house poor” down the line.

Home Expenses

When considering your home, it is important to look beyond the purchase price and mortgage cost. Owning a home entails additional financial responsibilities such as maintenance, property taxes, utilities, and more. Even if you can afford to purchase an $800,000 home, it is crucial to evaluate whether you can comfortably manage these ongoing expenses.

In terms of your home-related expenses and your overall monthly budget, the costs associated with maintaining your home should not surpass 35% of your total monthly income.

Monthly Budget

To help you keep track of your finances, consider breaking up your monthly budget into the following categories:

• Housing – mortgage payments, property taxes, utilities, etc.
• Transit – car payments or transit passes, gas, maintenance, etc.
• Debt – payments to credit cards, lines of credit, etc.
• Savings – your long-term savings for retirement, etc.
• Life – food, vacations, fun, medical, childcare, etc.

From there, you would want to look at how much you spend on each category. Below is a good rule of thumb:

• Housing – 35% of your monthly income
• Transit – 15% of your monthly income.
• Debt – 15% of your monthly income
• Savings – 10% of your monthly income
• Life – 25% of your monthly income

By spending too much on housing, you are forced to sacrifice in other areas of spending such as your life or savings, but it is better to be life RICH than house POOR.

If you are unsure what you should budget for your new home, or have questions about making your home costs more affordable (such as changing your mortgage payments), don’t hesitate to reach out to your mortgage expert today!