Homebuyers

From Debt to DTI: The Real-Life Costs That Impact Home Affordability

You've crunched the numbers, checked your credit score, and browsed home listings—but that's just the beginning of buying a home.

The homebuying process is filled with hidden costs and surprising factors that can make or break your budget. How much debt you have, unique features of the property, and unexpected fees can significantly influence how much house you can truly afford.

"Total debt-to-income (DTI) is what ultimately will dictate how much buyers can afford," said Raulyer Hernandez, a loan officer for New American Funding based in Orlando, Fl. (This ratio represents the total amount of recurring monthly debts divided by your gross income.)

"Minimum credit card payments, child support, salary garnishments, and even short-term payment plans like Klarna or Afterpay can impact your purchasing power,” said Hernandez.

A mortgage calculator can help you to get an idea of what you can afford. But the actual amount will depend on your unique financial situation.

Understanding debt-to-income ratio

While you may be able to get pre-approved for a certain amount for a loan based on your income, understanding the financial factors beyond credit score and income is key.

Your DTI ratio has a significant impact on how much home you can buy.

While a DTI of 36% or less is often considered ideal, some lenders allow higher ratios. In some instances, conventional loans permit up to 50% and FHA loans may go up to 55%.

Failing to account for these obligations can lead to unexpected hurdles when you're ready to finalize your loan.

The hidden costs of homeownership

Beyond the financial calculations, there are also unexpected expenses and fees that can surprise even the most prepared buyers.

Even the cost of utilities may be higher if you’re moving from a small apartment to a larger home. And you may now be responsible for paying for services that had previously been included in your rent.  

Hernandez points out that property taxes, homeowner's association (HOA) fees, and homeowner's insurance (HOI) are some of the most significant factors that can drastically alter your total monthly payment.

If you're looking at properties with HOA fees, for example, you'll want to make sure you fully understand not just the monthly cost. There is also the possibility of HOA special assessments, which is a temporary charge that may arise if something in the community needs to be replaced or fixed, or additional fees that could arise.

"Condo buyers are sometimes surprised by the impact of condo fees or special assessments," said Wayne Curtis, a real estate agent for Sotheby's Realty, based in Baltimore, MD. "These are on top of mortgage costs and can significantly affect affordability."

The cost of homeowners insurance is also rising in much of the country. That can be a burden to those who live in areas that are more prone to natural disasters, such as flooding or wildfires, especially if costs jump dramatically.

Home maintenance and other unexpected costs

Many homebuyers underestimate the true cost of ownership, which includes repairs, maintenance, and other overlooked expenses.

Buyers spend an average of $13,498 on repairs and renovations after moving in, with an additional $6,446 on furniture, fixtures, and appliances, according to a recent study by Clever Real Estate. The education and research company surveyed 1,000 recent homebuyers in late September 2024.

What’s more, about 22% of buyers reported that their home inspector missed critical issues, leading to unexpected and costly repairs after closing. Regular maintenance tasks, like HVAC servicing, gutter cleaning, and driveway de-icing, may add hundreds—if not thousands—of dollars annually to the cost of homeownership.

Planning ahead can make a difference. Experts recommend setting aside 1% to 3% of your home’s purchase price annually for repairs and maintenance.

Raulyer Hernandez NMLS # 619301