Is your Home or Apartment Within Your Financial Means?
For most of us, our home mortgage or rent is our highest monthly expense. Financial experts recommend that individuals live in a home or apartment, within their financial means, so they can have enough money to put towards emergency, savings or retirement funds. They are also quick to point out that your home cost doesn’t just consist of your monthly rent or mortgage, it also includes additional costs such as repairs, maintenance, and homeowners or renters insurance. But, with 76% of Americans living paycheck to paycheck and more than 1.1 million U.S. homes currently in some form of foreclosure, it’s obvious that many Americans are living beyond their financial means and aren’t doing much to save. So what does the ideal financial situation look like for the average person? Keep reading and find out.
According to the 2012 Census, the average annual median income per household is $51,371. However, keep in mind that median incomes vary by state and location. For example, in Mississippi, the median income is $37,095 compared to Maryland at $71,122. For our purposes, we are going to use the median income of $51,000 to discuss the average ideal financial situation.
Monthly Mortgage/Rent Payment
So, if the average income is $51,000 a year, the average property tax rate and homeowners insurance cost is $978 per year.
Now, keeping these numbers in mind, an affordable home purchase would be $180,000 or less with a monthly mortgage payment of $900 or less. Once taxes and your homeowner’s insurance rate has been added, your monthly mortgage payment shoots up to around $1,190 a month. That’s $14,280 a year or 28% of your annual household income.
As for renters, according to the U.S Department of Housing and Urban Development, if you are a renter and you’re paying rent higher than 30% of your monthly income, then you are considered “cost burdened.” This means that in an average situation of an individual earning $51,000 a year, their maximum monthly rent should be $1,260 a month. This amount also takes into account your renters insurance.
Homeowners/Renters Insurance and Property Taxes
The average property tax in the United States is 1.38%. But, that amount varies by where you live. Residents of West Virginia or Alabama can expert lower property taxes, than those residing in Los Angeles or New York. Property taxes are paid directly by homeowners, and renters, who usually pay higher rent prices in better areas.
The average homeowners insurance rate in the United States is $978 a year, while renters usually shell out $185 a year for their renters insurance. Homeowners and renters insurance are important because they can protect you financially in case of a fire, theft, or other unforeseen circumstances.
So how do you measure up? Is your home within your financial means? Let us know in the comments section below.