The most effective strategy to figure out how much home I could afford started by breaking my expenses into 2 parts

Cheryl Lock

Jan 19, 2020, 22:29 IST

The most effective strategy to figure out how much home I could afford started by breaking my expenses into 2 parts

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The author is not pictured.

Last year, my husband and I decided to look into buying a new house. We loved our first home, but it was lacking some of the spaces we needed (like an office for me).
Instead of looking at listings, though, we started by splitting our expenses into two columns: expenses that would likely change if we bought a house, and expenses that would remain the same.
From there, we figured out how much wiggle room we had, set a budget for a new home, and started looking. Our two-part budget strategy would work for almost anyone shopping for a house.
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In the spring of 2019, my husband and I began considering whether or not it would be a good idea to buy a new home. We loved the house we were living in, but there were a few specific things on our bucket list that it could never provide (like an office for this work-from-home writer, for example).

Still, before jumping into the process of putting our beloved first-ever house on the market and searching for a new one, we decided to price out some renovations that might make staying in our current home doable for a while longer.

After meeting with a contractor to discuss some plans, though, it became pretty obvious that the answer to achieving most of our home "wants" would be to invest in a bigger place. So our next big question became: how much house can we really afford?

I'm a numbers person at heart, so creating a budget to determine what an affordable mortgage would look like for us was something I actually enjoyed doing.

If you're in the market for a new home - or even a first home - experts suggest starting with the numbers before even looking at houses in order to get a better idea of the price range you should be shooting for.

The following are the monthly budget factors we used to help us figure out how much home we could afford, broken up into two categories.

Expenses that would likely change with a new home

Mortgage: Our mortgage payment would be our biggest X factor, but we could at least start with what we were paying on our current home as a jumping-off point.

Energy: Our energy bills vary with factors like the seasons and if we have guests that particular month, but we have a good general idea of what we spend, and understood as well that with a bigger home, this could go up.

Water: Another moving target, we had a general idea of what we spend each month on water for our house, with the caveat that it could increase in a new house with a potentially larger yard to care for.

"For home": We have a line item in our budget for catch-all home items we might buy each month - yard stuff in the warmer months, new bedding, etc. - which is flexible.

Miscellaneous: Another moveable line item, the "miscellaneous" category within out budget covers random things that don't really fit anywhere else, like a trip to the aquarium, stamps, or airport parking (which occurs a lot).

Savings: Although we knew we'd try our best not to change this line item too much, if it was necessary, we could deduct a small amount from how much we put into savings each month to cover the difference on a new mortgage.

Individual spending: Chris and I keep a section of our budget to ourselves - we each have our own personal credit credits that we put a certain amount on each month for personal items that the other doesn't need to approve of (him: tons and tons of running shoes; me: books and 5,000 indoor plants).

If necessary, we could each deduct from our personal monthly spending to pad what might be needed for a new mortgage.

Expenses that would likely stay the same, even with a new home

Groceries: We try to stick to the same projected grocery budget each month for our family of four (luckily, a 2 year old and 3 year old don't eat that much ... yet!). With a larger home, this number shouldn't change.

Pet care: We spend an estimated $100/month on pet supplies, which wouldn't change with a new home.

Cell phones: We spend $200/month on our joint cell phone bills, which shouldn't change.

Car insurance: Luckily, this is a number that stays approximately the same each month.

Internet/Spotify/Netflix/Dropbox/home security: All of these budget items stay roughly the same per month.

Car payments: This wouldn't change with a new home.

Car miscellaneous: The amount that we budget each month for gas and other car needs wouldn't change based on a new home.

"The girls": Our catch-all budget line item for miscellaneous things we buy for our daughters each month - clothes, swim lessons, diapers, wipes, etc. - would need to stay approximately the same, no matter what our mortgage became.

529s: The amount of money we put into 529s for our girls each month is a fixed amount for us - we wouldn't be pulling from this bucket to fund a new mortgage.

Retirement: Same here - the amount of money I put into my retirement account and that Chris puts into his is a non-negotiable.

Preschool: Monthly (astronomical) preschool payments for our daughter are a fixed, non-negotiable fee.

However long that list might seem, we both know we're extremely lucky there weren't any additional items on it for costs like student loans and other debts.

Having our fixed and non-fixed budgets in hand, we were able to guesstimate how much we'd be willing to pull from our non-fixed items for a new mortgage, and we could head into the house-search process with an actual monthly mortgage goal in mind.

Doing it this way allowed us to rule out even looking at (and potentially falling in love with) homes that were way beyond our means, and to really focus on the factors that were most important to us (a more private backyard, an office for me, a home on a dead-end street) and give up the less-necessary things (a brand new kitchen) in order to stick with our budget.

At the end of the day, it does take a little bit of time to figure out how much "new home" you can afford, but if you want to keep most of your lifestyle the same and not struggle each month to meet your goals, creating this kind of budget is a means to reaching those objectives.

Oh, and in case you're wondering: We did find a new home within our budget, and I started 2020 off working from my brand new - and first-ever - home office, while still keeping our additional monthly budget items in tact.

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