Homeowners are typically advised not to spend more than 30% of their income on housing, but when most financial experts figure that limit, theyre only including a mortgage payment, property taxes, and insurance. While its true that home maintenance costs are far less fixed than the aforementioned, if you want to play it safe, youd be wise to limit your total housing costs to 30% of your take-home pay or less.
Of course, if youre first buying a home, you may not know how much annual maintenance will run you. But if you use the data above, you can do your best to anticipate the cost of upkeep.
Lets say you buy a $300,000 home thats on the older side. You might choose to be conservative and assume youll spend 4% of your propertys value, or $1,000 a month, on maintenance. Now lets assume your monthly mortgage payment is $1,120, your property taxes total $300 a month, and your homeowners insurance costs $80 a month. Without your maintenance costs, youre looking at just $1,500 a month, but when you factor in those estimated maintenance costs, that figure jumps to $2,500 a month. Yikes. And if youre only bringing home $5,000 a month, $2,500 is probably too much to spend on housing — even though that initial $1,500 wouldve put you right at that 30% threshold.
You need emergency savings
Another must-do before buying a home, regardless of its associated maintenance costs, is to build an emergency fund with enough cash to cover six months of living expenses. Again, most financial experts will tell you to aim for three to six months of expenses. But if youre a homeowner, youd be wise to target the high end of that range — because you never know what outrageous expense might come your way, and you cant afford to get caught off guard.