How Much Should I Have After Paying Mortgage & Expenses?

There are many benefits to home ownership, including the freedom to remodel your house to fit your needs. Before you sign on the dotted line for a home loan, it’s important to understand how much of your income you’ll have to spend on all the expenses associated with home ownership. Then you need to take a hard look at your budget and see if it really makes sense to buy at this point in your life.

Most homeowners spend the biggest portion of their housing budget on their mortgage. Your monthly mortgage payment will include charges for both the principal on your loan and the interest. If you have an escrow account associated with your mortgage, your payment may also include charges for property taxes, homeowners insurance and title insurance. To determine if your total mortgage payment per month is affordable, use the debt-to-income rule used by lenders. According to the rule, you should be spending no more than 43 percent of your before-tax income on all your debt payments. So, if your gross income per month is $4,000, your total debt including mortgage, auto loans, credit card payments and student loans should be less than $1,720.

Many residential communities require you to be a member of a property association. These homeowners' associations typically charge a monthly fee that is used for landscaping and for maintenance of common areas like swimming pools, tennis courts and parking spaces. Don’t forget to include this fee in your calculations when deciding if you can afford your own home.

In addition to your mortgage payment, you’ll need to cover the cost of maintenance and repairs for your home. A rule of thumb on how much you should spend annually is 1 to 2 percent of your home’s value. You should also have an emergency fund to pay for unexpected expenses, like a broken furnace or plumbing issues. Unlike many renters, you will also be responsible for buying your own appliances and furniture. You should also consider potential costs for yard care if you don’t plan on taking care of it yourself.

After you’ve paid your mortgage, you can spend the rest of your income on debt, food, clothing, transportation, health care and entertainment. Many financial experts recommend using the 50/20/30 rule to plan your budget. This rule suggests allocating 50 percent of your income for necessities like housing, utilities, food and transportation and 20 percent for debt payments and savings. Ideally, this leaves 30 percent for nonessential expenses like eating out, entertainment and vacations.