Can You Afford A Mortgage? Here's The Math:

So budgeting and finances get a little confusing. Here is a simple method to determine if you really can afford that house payment with no doubt in your mind.

1. Look at the past 6 to 12 months and pick the lowest two paychecks (if you've worked at the same job. And this is assuming no raises either. You may have to use the last 3 months if there have been changes. You want an idea of what your lowest income could be if you went on vacation for example and got paid a lower amount).

2. Add these two biweekly paychecks together. This will be your sum income (add any additional CONSISTENT income here that you may have. The point is to under shoot your income).

3. Determine what your monthly expenses for at least the last 3 months. To do this you will want to simply use a pen and paper or an excel sheet. You will want to categorize your expenses like such: fuel, groceries, eating out, energy bill, loans, rent, fun, shopping, etc.

4. Take your 3 months of expenses and average them for each category. So if in January I spent $65 on fuel, February I spent $140, and April I spent $215 --> my average would be $420 (add all values then divide by 3). I would then round this number up to $450. We want to overestimate our expenses and underestimate our income. Consider adding more of a cushion to other categories that you know you can spend more on.

5. Add all expenses and subtract from overall income (exclude rent in this).

6. How much do you have left? Are you comfortable with this number? After adding a monthly mortgage payment?

   1. To calculate an estimated monthly mortgage I use this Google website. This is super helpful and realistic calculations.

      1. . Click here for Google Monthly Mortgage Calculator

7. If the monthly mortgage seems do-able then, great!! Now, do you also have more money to add to your savings after your mortgage payment is added into this equation?

   1. I would shoot to have AT LEAST $500 extra at the end of each month.

   2. Think about it: you will have a down-payment. This will deplete your savings so it will take quite a bit of time to get that back. Especially if you are only saving $500 each month instead of more because your rent payment was $1200 instead of a mortgage payment of lets say $1900 at the lowest these times!

   3. Think about it: appliances, building materials, and surprises in a house can be extremely costly. A new garage door costs $3,500 on a good day. Gutters cost $350. Things add up quick especially when you have no savings from losing it all with the down-payment.

This is not to discourage you. Finances can be frustrating, but they also can be very rewarding as well when you make a goal and find yourself reaching it. I would encourage you to take small steps at first but try to achieve those financial goals. There is nothing worse than being at the financial mercy of someone else or your job you don't enjoy because of money.

Hopefully this helps, loves!