How do I know if I'm able to afford a home?

A lot of us started out on our own by renting an apartment, maybe it was in college or somewhere else. And there are certain things that you don't get out of that rented apartment or rented house that you do with a home that you own. Things like stability, and an asset you can build some equity and wealth in.  

On the flipside, there's a simplicity about renting. There's an inherent flexibility - that you can move somewhere else if you need to at the end of your lease. If, say, your neighbors are nightmare or you get a job somewhere else or really any situation. And there's a financial simplicity. You're not directly on the hook for maintenance or repairs or improvements. Nor the expected repair cost, property tax, and financing cost. Those things are all baked into your monthly rent payment. But they're kind of broken down into small pieces and amortized so it's in there in your rent, but it's not a big amount. 

When people think about housing affordability, usually they’re talking about the mortgage - so physically being able to buy and pay for the building in the land. But there's a heck of a lot more that goes into owning a house and paying for a house then just your mortgage. You’ve got property taxes and Homeowners insurance. You've got regular maintenance and upkeep expenses. You've got maybe a homeowners association that you pay dues too. You may have improvements that you'd like to make to a house, depending on the age of it.

So the first step of figuring out affordability is really to just lay out the different expenses and crunch some numbers to figure out what can you make work with your monthly budget. And let's say that's $3,500 a month. You can use that as your measuring stick on affordability of all housing expenses. So it doesn't mean that you can go out and buy a house where the mortgage is $3,500 a month. Maybe it's something more like $2,750 a month. And then another $750 a month for insurance and taxes and maintenance and upkeep and association fees. 

It very well could be the case that housing costs are really high in your area. That doesn't necessarily mean you can't buy a house. It just means that maybe you need to make some trade-offs with other areas of your budget. Maybe if you need to take your housing cost budget from $3,500 to $4,000 a month, you can find that extra $500 a month in another part of your budget. 

Square one I think needs to be just staying grounded, understanding your numbers and then from there making some choices.