Buying a home is a long-term financial commitment. Homeowners are responsible for the monthly mortgage payment and all other housing-related expenses that renters may not have to pay, such as taxes, maintenance, or utilities.
These are the not-so-obvious costs of homeownership that factor into your ability to afford the home over time. Whether you’re buying your first home or looking to upgrade, considering how the home’s affordability fits into your lifestyle can help you make a decision you feel confident about long after closing day.
You should begin your home search after talking with a lender and getting prequalified for a loan. This gives you an idea of how much a lender will reasonably loan to you and a starting point for finding a home within your price range. But what many buyers don’t realize is that the home’s selling price and long-term affordability are not the same. Understanding the difference can make or break your financial future.
What Is the Difference Between Home Prices and Home Affordability?
Although a lender may approve you for a certain amount, it doesn’t necessarily mean that number fits comfortably into your day-to-day life or supports your future goals. Affordability goes beyond purchase price and includes:
- Your monthly mortgage payment
- Property taxes and homeowners insurance
- Utilities and maintenance costs
- Homeowners association (HOA) fees, if applicable
Homes that are similarly priced may have very different monthly payments depending on other costs, such as interest rates, taxes, insurance, and down payment. Even small changes in interest rates or insurance premiums can significantly affect your monthly payment.
When shopping for a home, you should consider the true financial commitment and compare your options. A mortgage calculator can help you figure out what best fits into your budget and lifestyle. Visit the Single-Family Programs and Resources section of our website to use our Mortgage Calculator. Plug in different values to better understand what works for you and your budget.
How Does Debt Affect How Much Home You Can Afford?
Lenders use a calculation called a debt-to-income ratio (DTI) in determining how much you can borrow. This looks at how much debt you have relative to your income as a percentage. Various factors determine the maximum allowable DTI to qualify for Fund mortgage programs. Your lender will assess your unique situation and provide guidance.
Debts such as student loans, medical bills, credit cards, and other consumer debt factor into your DTI. If your DTI is on the higher end, it means you are paying more each month toward debt, leaving less money to cover your mortgage payment and other housing-related expenses. Conversely, a lower DTI could mean that you have more money to pay for housing, but you may or may not have the income sufficient to repay a mortgage loan. It’s important to talk with your lender about your debt and how that affects your ability to qualify for or repay a loan.
In today’s digital marketplace, more consumers are taking advantage of Buy Now, Pay Later (BNPL) services, such as Klarna or AfterPay. These services offer short-term, often interest-free financing that allows consumers to purchase items then pay for them in small, equal installments over time. These BNPL payments do not require credit, and payments generally come from your bank account.
However, these BNPL payments add up quickly and can affect your overall ability to qualify for a loan. If you use BNPL services regularly, you should disclose that to your loan officer before applying for your mortgage.
Hidden Costs of Buying a Home
First-time buyers may be unaware of the hidden costs of buying a home, such as closing costs, moving expenses, furniture or appliances, and immediate repairs or updates. Even the costs of replacing or rekeying locks can add up.
For repeat buyers who are upgrading to a bigger home, costs can increase in less obvious ways. Your new home might require more utility usage, increased maintenance, more space to furnish, or landscape to maintain.
Before making an offer, research these costs and see where you can save money.
- Our Low Down Home Loan can help borrowers using Fund mortgage programs cover closing costs.
- Call local moving companies to get a price quote and begin setting aside some money each month to cover your expected moving costs. Explore free or low-cost options, such as renting a truck yourself or asking your friends with pick-up trucks to help.
- Sellers may be willing to share information about the home’s utility usage and cost with your real estate agent.
- Consider the costs of transferring utility accounts to your name. Call the utility companies to inquire about this so you’re not surprised on your first day of homeownership.
- If you know you’ll want to replace appliances or buy new furniture, begin putting money aside now. Saving for large purchases over time reduces some of the financial strain as you adjust your budget to cover your new housing expenses.
How Your Lifestyle Affects Home Affordability
Affordability has become more challenging for many buyers in today’s housing market. It is important that you enter the process with a clear understanding of your finances and how owning a home fits into your lifestyle.
Sometimes, the best financial decision is to pause. You may want to reconsider buying if your income is unstable, you carry high debt, you don’t have emergency savings, you don’t know how long you’ll stay in the home, or you’re unsure the home can provide support or space if your family grows.
Waiting doesn’t mean giving up. Instead, it creates opportunity to buy with confidence later.
Homebuyer Education and Housing Counseling
Buying a home can seem like an intimidating process, but you don’t have to do it alone.
HUD-certified housing counselors can help you prepare for homeownership, whether that’s a goal you’re working toward in the future or something you’re ready for now. Counselors can help you:
- Understand your budget and financial readiness
- Review your credit and give you tips on how to repair or improve it
- Determine a realistic price range based on your finances and goals
- Explore loan options, including programs that require low down payments
Many of these services are offered for free or at a low cost, and are provided by certified professionals who are there to educate and support you.
Borrowers using the Fund’s Homeownership and Movin’ Up programs are required to complete a homebuyer education course provided by Fannie Mae that provides tips on budgeting for expenses and other key homeowner responsibilities. Your Partner Lender will provide more information about this free, online course.
What You Can Do Now
Before you start housing hunting, take time to understand what affordability means to you and how housing expenses fit into your overall budget and lifestyle. A few steps to get started:
- Review your monthly budget, including income and expenses
- Check your credit report online. You are entitled to a free yearly report from each of the three credit bureaus.
- Use a mortgage calculator to determine which payment and terms comfortably fit into your budget.
- Connect with a housing counselor for home buyer education, credit repair, and other services.
The goal isn’t to just buy a home; it’s to choose one you can comfortably afford and enjoy for years to come.
Our in-house loan originators and network of Partner Lenders are experienced in working with first-time and repeat buyers purchasing homes in West Virginia. Give us a call at 800-933-8511 or visit our Find a Lender database to locate a partner lender in your area to get started.