Figuring out what a person can afford to pay for a new home involves determining take-home pay after taxes, recurring household expenses, new costs of being a homeowner, financial obligations that no longer have to be taken care of after owning a home, and the overall cost of interest for a mortgage, according to Investopedia. Special calculators can also be used to determine how much home a person can afford.
Once an individual becomes a homeowner, his take-home pay is likely to increase because of homeowner tax breaks, notes Investopedia. Examples of new household expenses and bills that additional money can be used towards include homeowners' association fees, house maintenance, hazard insurance, property taxes, and monthly fees for water/sewer and trash services. Recurring monthly expenses that should be considered include car insurance, phone bills, credit card bills and the cost of groceries.
Some of the financial obligations that might either decrease or be eliminated entirely after buying a home include paying renter's insurance, spending money on eating out and entertainment, and the cost of gas if the homeowner is moving closer to his place of employment, according to Investopedia. A person should also factor in whether he has to pay private mortgage insurance and how much of a down payment he can make on a home to reduce the total amount of his mortgage.