How To Tell If You Can Really Afford The Home You’re Living In



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afford-house-by-adri021.jpg Do you think you can truly afford the home that you’re currently living in?

According to Suze Orman, chances are you cannot. 

On the Oprah show, Orman said thousands of Americans are living a lie and outliving their income, while using credit cards to support the facade. 

When a family that was $90,000 in credit debt and living on a $2,000 deficit insisted an apartment would cost as much as their home, she nearly lost it.  Orman quickly detailed house-related expenses like a $500 a month oil bill, a water bill, and other factors that this family would not have to pay if they rented. 

With that said, here are some of the indicators that you cannot afford your home…

 

#1   The most obvious measure of whether you can afford your home or not is how you are using your credit. 

If you are not making enough money to pay for basic monthly expenses without resorting to credit, then you probably cannot afford your home. 


#2
  If your home (and the cost of caring for your home) is more than 28% of your income, then you probably cannot afford your home.  While many experts (especially banks) will tell you that your mortgage alone can be 28% of your income, common sense should tell you differently.

In an MSN Money article, A Simpler Way To Save: The 60% Solution,  the author reminisces that he was in a much better place financially when his mortgage was only 15% of his household income.  He adds that when he purchased a new home (that amounted to 20% of his income), he began to struggle again.  Even if you do manage to keep up your payments for years at this rate, you will be house poor and miserable. 

#3  If you find yourself putting off needed household repairs such as a leaky roof, or replacing a broken oven, then you probably cannot afford your home. 

Regular home maintenance is something that you simply cannot afford to put off.  The longer you put off home repairs, the worse the problems will get and the more they will cost you later.  Here are typical home repair costs to help you estimate how much your home repairs will amount to.

#4  If paying the utility bills (such as heating, electric, and water) for your home are a struggle, then you probably cannot afford your home. 

As experienced by an HGTV dream home winner, even a FREE home can cost too much if you can’t afford the utilities, taxes, and maintenance.  Fortunately, the winner had the good sense to realize it before even moving in. 

#5  If you cannot make regular, on time monthly mortgage payments, then you probably cannot afford your house. 

You need a home with payments small enough to allow you to make payments on time.  Regular late payments do a lot more than anger your mortgage company.  Late payments cause insurers and other creditors to automatically charge you higher rates.  
 

Here’s an Afford House Calculator to see if you can afford your home.
 

 

What To Do If You Cannot Afford Your Home

So, once you’ve established that you can or cannot pay your mortgage, what do you do next? 

If all indicators say that you cannot afford your home, you have a few choices:

  • You can sell your home and move, asking the bank for a short sale if necessary.  A short sale is when the bank allows you to sell the home for less than you owe them and accepts the lesser amount as payment in full. 
  • You can cut other costs in your home (such as a car or private schooling costs) until your situation changes. Of course, getting rid of a car and the added payments works best if you live near your place of employment
  • You can take another job or find another way to make extra money. Here are 7 industries that are hiring
  • You can take in a roommate.  Taking in a roommate for just a year may give you the financial boost you need until your finances improve. 

Andrea

I have been a certified tightwad striving for financial freedom since I became pregnant with my first child -- and I decided to find a way to stay home with him full-time. I enjoy sharing my personal experiences in my journey back to financial health and planning for a future -- which will include sending 2 kids to college and early retirement.

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