A light bulb went off while I was talking with Heath in the comments about the components of a house payment. It used to be that a mortgage accounted for 70, 80, maybe 90% of what you were paying out every month for your house.
No longer the case, it seems. Those of you shopping around at these new price levels may have already realized this—in many respects, budgeting for a home is no longer about the mortgage.
Of course, that depends in large part on your target price range and where you live, but it’s been my experience.
Instead, the mortgage has become a much smaller percentage of the total payment, with insurance, taxes, assessments, and other fees remaining at bubble levels of lagging behind, and eating up a larger percentage of house payments are a result.
I might expect to pay about $475/month on a mortgage for a $100,000 house. At the same time, I could easily be paying $150/month for taxes, another couple of hundred for insurance, $50 for PMI, and $300 or more for community fees (this varies widely and some people I know are paying through the roof!).
What Does it Mean?
This is huge, because the only fixed part of your house payment is the mortgage. During the days when that made up the majority of that payment, you could reasonably expect your home expenses to be “fixed.” In fact, that’s one of the “traditional” benefits of owning a home.
But when 50% or more of your payment is in things that vary from year to year, that predictability is shot. If a hurricane hits the neighborhood, your payments skyrocket. If property values rise dramatically, your payments skyrocket. If 80% of your community moves out and you’re left supporting it, your payments skyrocket. And on and on…
What’s the Solution?
I think there is only one way to protect ourselves from this kind of unpredictability—predict it. Back well off from what the bank tells you that you can afford and account for future increases in any one of the variable areas of your house payment. Your future budget will thank you.
What do you think? Have you found this to be the case? Do you already own a home and have experienced one of these unforeseen rises in costs? If you’re shopping for real estate right now, how are you planning for these? Share your thoughts!