The Costs of Homeownership Are Rising Again. Can You Afford a Home Today?

It's becoming more difficult to be a homeowner. Here's what you need to know.

It's no secret that home prices have soared in the course of the past year. Low mortgage rates and limited inventory have fueled a surge in demand, and now, a lot of buyers are finding it difficult to come across properties that fit into their budgets.

But it's not just that homes have gotten more expensive to purchase. They've also gotten more expensive to own.

The monthly mortgage payment you submit each month represents just a portion of the total expenses of homeownership you'll incur. You'll also have to deal with property taxes (which have the potential to rise over time), homeowners insurance, maintenance, and repairs.

In fact, according to ATTOM's latest U.S. Home Affordability Report, during 2021's third quarter, median-priced single-family homes were less affordable compared to historical averages in 75% of counties nationwide. That's up from 56% of counties during 2020's third quarter.

Can you afford to own a home today?

You may be in a position to buy a home because you've saved up enough of a down payment to qualify for a mortgage. But does that mean you can actually afford one? Not necessarily.

Depending on where you buy and the type of home you buy, you may find that your total expenses amount to much more than your mortgage payment alone. And that could, in turn, render homeownership unaffordable for you.

The 30% rule

As a general rule, you shouldn't spend more than 30% of your take-home pay on housing. And by "housing," we're talking about your predictable monthly expenses. Those include:

• Mortgage payments
• Property taxes
• Insurance
• Homeownership association (HOA) fees, if you're purchasing a home that's part of a homeowners association
• Private mortgage insurance premiums, which apply if you don't put down at least 20% of your home's purchase price when you take out a conventional mortgage

You'll notice that maintenance and repairs didn't make the above list. Those are still expenses you'll need to grapple with, but because they're not preset, they don't necessarily have to count toward that 30% threshold. However, to better protect your finances, you may want to try to estimate those costs and factor them into that 30%.

What happens if you spend more than 30% of your earnings on housing? You may land in a position where you fall behind on other bills, thereby being forced to rack up unhealthy debt.

Now, there's some wiggle room with that 30% guideline. If you're moving to a city where you can get by on cheap public transportation and therefore don't need to own a car, you can probably spend more like 35% to 40% of your income on housing and still be okay. That's because you'll be saving a lot of money by not having a vehicle to pay for and maintain.

But for the most part, it's good to stick to that 30% limit. So as you embark on a search for a home to buy, don't just focus on the price of that property and the mortgage payment it will result in. Rather, look at the big picture and make sure that home is affordable after accounting for all the costs involved.