How Much House Can You Afford?

Dollabuzz Provides an Answer To How Much House Can You Afford

Hellooo Dollabuzz readers! It has been just over a week but it has felt much longer and I miss my fellow ‘Buzzers! Even though there is not many of us that is ok. We still out her talkin bout gettin money. So Mr Dollabuzz, what are we going to learn today? Glad you asked. Dollabuzz will show you how lifestyle creep, a few hidden costs, and paying yourself first all impact how much house you can afford.

How Much House Can You Afford: House Creep Can Leave You House Poor

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Dollabuzz and Don’t Be House Poor

Creepin On Ah Come Up

Creepin On Ah Come Up. Now there is an oldie but goody. There is a big difference between what the bank will approve you for and what you can afford. Banks don’t know your hidden costs like vacations, eating out five days a week, and the weekly splurge at the bar. Unless you pay with your credit card, these lifestyle expenses don’t impact your credit score.

Why is this important? If you are currently renting for $850 a month then your lifestyle is based on $850 a month. Buy that new house and now you are paying $1400 a month. Your Dollabuzz just got hit with house creep because you need to adjust your lifestyle by $550 a month.

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Dollabuzz Your Lifestyle Now

How Much House Can You Afford: Dollabuzz Your Lifestyle

Dollabuzz your lifestyle now and live like you are paying $1400 a month to see how it feels, then adjust accordingly. Creating a written budget will help you get a better idea of how much house you can afford. Having a budget and most importantly LIVING within that budget for a few months before buying will help ensure a house you can truly afford.

If you plan to have a roommate kickin in some rent, don’t treat it as free money. Have yourself a little stash or better yet, pay off any lingering debt as fast as possible. You really gotta pay off them little bills ASAP because they will kill your Dollabuzz.

How Much House Can You Afford?

So Mr. Dollabuzz, how much house can I afford?

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How Much House Can You Afford? Only You Know How Much House You Can Afford.

That is a question only you can answer. How much cash are you comfortable handing over each month? How will a new house impact your lifestyle? We can afford a $250,000 house but we would be “house poor.” House poor means you can’t afford other things due to your house payment. See additional insight about the concept of house poor.

There are numerous websites and blogs that discuss how much house you can “afford.” At Dollabuzz, we strive for original content and don’t want repeat things that have been written a hundred times. However, this is valuable information. See how banks determine how much house you can afford and other home buying tips.

How Much House Can You Afford: Hidden Costs

How Much House Can You Afford: Escrow

Escargot/my car go…No, No. Not escargot. ESCROW. Escrow? Is that some kinda bird?  What in Dollabuzz are you talking about? Most lenders require you to pay property taxes in advance and this money is held in “escrow.” Come tax time, your lender will pay your property tax bill out of this escrow account. The problem is when this escrow is “short” and you need to make up the difference which is usually added onto your monthly payment. See more detail on the escrow process.

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In my experience, calculating the amount of taxes paid into escrow at closing is a bit of a crap shoot. When buying the condo and our house, the amount held in escrow was short at the time the first tax bill was due. How did we know we were short? The lender performs an escrow analysis each year and then will send you a letter notifying you of commin up short.

How Much House Can You Afford: Incidental Costs

Another example of hidden costs are the incidental costs associated with buying a house. For example, when we bought our current house we discovered we had to pay for a water softener and seed our lawn. These two items alone cost an extra $2,000. Furniture is another sneaky hidden cost. For the first four months we did not have furniture and used lawn chairs as our furniture.

How Much House Can You Afford: Home Warranty

Your lender will require an inspection and it would be good to be present during the inspection which will allow you to ask questions. Another good idea is to ask for a one year “warranty” that covers appliances and other items. A warranty typically costs $400 – $500 and is usually paid for by the seller.

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How Much House Can You Afford? A Home Warranty Paid For By The Seller May Help With Unexpected Repairs.

What About Condos And What Is a Home Owners Association?

Condos can be a great choice as well. However, the biggest issue with condos is the home owners association (HOA) fee. This fee is usually paid monthly and covers certain expenses associated with running and maintaining the condo association. The risk is if the operating fund is not adequate to cover future costs you get hit with a special assessment or an increase in the HOA fee.

In addition to the risk of increased HOA fees, there is a risk that these associations have affiliations with organized crime. In addition to skimming the fund, repairs and improvements are often performed by associated contractors and is a big problem in Vegas and elsewhere. A guy I refer to as “Coach” and who has been in the real estate game for a long time says this is a real concern.

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Jack “Jackie the Kid” Giacalone. Reputed Boss of the Detroit Mafia.

How Do You Dollabuzz Your Condo Purchase?

This takes a bit of due diligence and the first step is to talk to other homeowners about any issues. Second, determine the age of the roof, driveway, clubhouse, heating and cooling systems and the pool. Are these things in good shape? Next, request the HOA financials and verify the fund balance is in compliance with the HOA bylaws. Finally, you can request HOA meeting minutes and look for discussions on repairs, improvements or other items indicating trouble.

How Much House Can You Afford: Pay Your Self First

For The Love of YOUR Money

Who wants more Bone Thugs?! I do! I do! How about for tha love of money.

At Dollaabuzz we are all about paying yourself first and to pay yourself first is to love yourself. If you don’t pay yourself no one else will. Not your baby boo, not nobody. The government will give you enough to “live” on if you are lucky. Paying yourself includes contributing at least 10% (hopefully more like 15%) towards retirement and paying off those little debts as fast as possible. Pay yourself FIRST and you won’t be house poor. New to investing? See our investment posts on opening a Betterment account and the 401k vs IRA debate.

How Much House Can You Afford: Dollabuzz Your Home Purchase

Buying your first house is very exciting but be careful of house creep. Pre- qualify with a lender, then use a  WRITTEN budget to adjust your lifestyle creep. Stick to your budget, price range, and be aware of hidden costs. Finally, be sure to pay yourself first. If you are not saving at least 10 percent towards retirement and have not paid off your little debts, then maybe reconsider buying a house. Following these steps will help ensure your Dollabuzz.