What Size House or Wedding Can I Afford?

Keeping Your Spending Realistic, and Smart

Gregory Karp

How Much House Can I Afford? Don’t Be “House Poor”

Buying a house is a fabulous idea and remains part of many people’s definition of living the “American Dream.”

But homeownership alone is not a panacea, especially in an era of easy lending and complicated home loans. Those recent changes have led many consumers to buy houses they simply cannot afford, which leads to the gut-wrenching process of foreclosure.

Here are some considerations when buying a home:

• Know the mortgage you can afford. The Federal Housing Administration, the government agency that helps people buy homes by guaranteeing loans, has a formula for home affordability. Mortgage principal and interest, plus real estate taxes, plus homeowner’s insurance should not exceed 29 percent of your gross income. That means a family with $75,000 in income could afford a house payment of about $1,800.

Your total debt, including the mortgage, car loans, credit cards, and the like, should not exceed 41 percent, according to FHA. That also means if you have no debt, you could technically afford a mortgage and associated costs of up to 41 percent of gross income.

However, that’s a liberal, and even risky, formula. You would be safer keeping those total expenses, plus additional maintenance costs, to about a third of your take-home pay, which delivers a very different—and lower—affordability figure.

More conservative yet is that the house payment should not exceed a quarter of your take-home pay on a 15-year fixed-rate mortgage. Mortgage affordability calculators abound on the Internet. Run your numbers through a dozen of them to get a feel for what price range you should be looking at. Start with calculators at Bankrate.com and Dinkytown.com and use your favorite search engine to find others.

• Don’t think “dream home.” You may one day live in your dream home, with the luxurious back porch, the granite countertops, or the whirlpool bath, but it’s unlikely to be your first home or even your third. The priority is to get into something you can afford, and then work on trading up or improving the house you have.

• Do your research. Buying a home is likely the single biggest purchase you’ll make, so it’s worth doing research. Know the housing market, read about and compare mortgage financing options, and always do the math on whatever home-buying topic comes up. If you’re not willing to do the learning and work, you’re not ready to be a responsible homeowner.

If you can’t yet afford to buy a home, don’t be dismayed. If you’re concerned about the difference in cost between buying and renting, plug in numbers to an online calculator by mortgage-backer Ginnie Mae at www.ginniemae.gov.

Moving Costs: Getting Your Stuff from Here to There

Moving your belongings into a new apartment or house can be physically, emotionally, and financially draining. Today, do-it-yourselfers have a plethora of choices for trading off cost with hassle.

Here are some tips on saving money and avoiding scams:

• Get your employer to pay. If you’re moving for a job, try to get all you can in reimbursement of moving expenses. A full relocation package is ideal, but anything you can negotiate is just free money. Also, keep your receipts. Some expenses may be tax deductible. To see the tax rules for moving expenses, go online to www.irs.gov and search for IRS Publication 521, called “Moving Expenses.”

• Be flexible on timing. May through September and the beginning and the end of each month are busy times for moving companies and truck rentals, which means they may be more expensive than during off times.

• Chuck it. Because full-service moving companies charge by the pound, the less stuff you take, the cheaper it will be.

• Get freebies. You might want special packing boxes for valuables, but free boxes from the grocery store or elsewhere work fine for transporting your more durable possessions, such as books and CDs. And it will save money on moving supplies.

• Supply your own packing materials. Wardrobe boxes, packing tape, bubble wrap, and similar products might be cheaper to buy at a self-moving company such as U-Haul International, Inc., or a shipping-supply company rather than buying directly from the moving company you’re using.

• Pack stuff yourself. You can save hundreds of dollars by packing most of your belongings yourself. An exception would be fragile and valuable items, which you might want packed by a professional.

• “You load, we haul.” This is a hybrid option, where you pack belongings yourself, and the trucking company drops off a trailer at your house for a couple of days so you can load it.

Then a professional driver will pick it up and drive it to your new home, where he drops it, and you unload it yourself. This might be an especially good idea for those who want to move themselves but are nervous about driving a large truck.

• Beware of low-ball estimates. Get at least three price quotes for full-service moves, with an eye toward companies recommended by friends and relatives. Be skeptical of price quotes that far undercut competitors. You can increase your chances of finding a reputable company if you make sure it’s a member of the American Moving and Storage Association, www.moving.org, or 703-683-7410.

• For helpful information on interstate moves, see Web sites for the Federal Motor Carrier Safety Administration, www.protectyourmove.gov, or the American Moving and Storage Association.

Wedding Spending: Like Marriage, It’s About Compromise

Weddings can be extremely expensive. The average cost of a traditional American wedding is pushing $30,000, with costs in pricey regions such as New York totaling much more.

Here is advice on spending money smarter when planning a wedding, with help from folks at TheKnot.com and Alan and Denise Fields, authors of several books on weddings.

• Set a budget. Come up with a total dollar figure and use industry averages as a guide to break down how much you should spend in each area. For example, with a $25,000 wedding and 150 guests, it suggests spending $1,500 on the wedding dress, $2,000 on alcohol, and $1,500 on the reception band or disc jockey. Of course, you customize those areas to whatever is most important to you. Having a budget also makes dealing with vendors easier. For example, give the florist a dollar figure for all the flowers and provide the colors you like. Let him do the work of sorting through choices and presenting you with options.

• Be creative. If you’re shopping at traditional wedding outlets, you’re almost sure to overpay, especially if the retailer’s name has the word “wedding” in it. To be creative, you might have to lose attitudes about the proper place to buy things. For example, Costco, the big warehouse club, is a great place to get diamond engagement rings for less. Buying a wedding dress from an online retailer or mail order can save money, as can renting a limousine from a funeral home.

• Make sure the time is right. The bride may always have dreamed of a June wedding, but if she can be flexible enough to hold it during a less popular time of the year, the savings can be substantial. You can have a more lavish wedding for the same price if you hold it during a less expensive time of year. Similarly, avoiding the usual Saturday evening wedding is sure to reap savings. An earlier wedding and a lunch or brunch reception can save a bundle. And for Christian church weddings, consider Christmastime nuptials. The church is already decorated with holiday flowers, which cuts out an entire category of expense.

• Trim multiplied expenses. Spending cuts that involve guests can be big savers because even a small savings turns big when multiplied by the number of guests. For a wedding with 200 guests, a small $5-per-guest savings reaps $1,000. And if you can cut down the guest list, it means big savings at the reception—on food, alcohol, table centerpieces, and other costs. You can cut the food cost-per-guest by bringing in an outside caterer if the reception venue will allow it.

• Save on blooms. Take an especially hard look at your flowers category. Most people don’t notice flowers and can’t tell whether a red bloom is a rose or a carnation from 10 or 20 yards away. So, choose a color, not a specific flower. Overall, try to cut in half the price of the florist’s first suggestion by substituting less expensive flowers. And you can easily eliminate or reduce the size of the huge bridal bouquet, which mostly gets in the way of seeing the bride. Use potted plants instead of floral arrangements at the reception, where it’s usually dark anyway. A rented plant might cost $150 when a large floral arrangement could cost up to $750.

• Dress success. Order the designer dress of your dreams but ask for it in a less expensive fabric. Nobody will know the difference, and you could save $500. Cut down on the embroidery and save another $1,000 on high-end dresses. If you’re at all handy, make the bridal veil for $10, rather than spending $500. Also, check out sample sales for dresses in December and January, when wedding salons sell floor display models to make room for new shipments.

• Piece-of-cake savings. Instead of a large wedding cake, get a small one for photos. After the obligatory wedding-cake photos, wheel the cake out of view and have the wait staff serve individual helpings from an undecorated sheet cake stashed in the kitchen. A sheet cake can cost 75 percent less because it’s not decorated, and guests won’t know the difference. Marie Antoinette had it right—let them eat cake.

• Booze budget. Don’t stock brand-name liquor in the open bar. Few people will notice the difference after the first drink anyway. Limit what the open bar includes. If you cut down to beer and wine only, add at least one special cocktail and give it a clever name that means something to the wedding couple.

• Easy cuts and trade-offs. Forgo hand-done calligraphy for the outside of wedding invitations and all the layers of enclosures. Cut the limousine service. Or consider using a rented or borrowed luxury car. There’s no need for floral arrangements in the bathrooms of the reception facility, despite your florist’s urgings. Go with simple reception-party hors d’oeuvres and splurge on the entrees instead. Say no to the fancy cases and albums for the wedding video and photos. They can cost hundreds of dollars. You can buy nice ones much more cheaply. And if you’re going with live music, don’t hire a separate band for cocktail hour. Instead, hire a few members of the reception band to come early.

• Buyer beware. Surely, the majority of wedding vendors earn their money, but be on guard for rip-offs. For example, some hotels and country clubs have ridiculous charges, such as “cake-cutting fees,” which cost 50 cents to $2 per guest simply for slicing the wedding cake. Some florists change the price of wedding flowers based on what type of car drives up. Gown preservation services that promise to clean and preserve the wedding dress are mostly a rip-off. Most dress shops simply throw the gown into a regular washing machine in the back of the store. And preserving the dress for a daughter is a nice idea, but it rarely happens. Just 2 percent of brides wear a family heirloom dress, surveys show.

• Where not to skimp. After the music has faded away, the food is eaten, and the flowers are wilted and gone, all you have left is your memories, captured on film and video. Don’t skimp on photography. To cut photography costs, use a professional photographer for the ceremony, but not for the reception. Instead, place disposable cameras on the tables and have guests take pictures.

A home and a marriage can be enormous sources of creature comfort, for you and the one you care about, but if you’ve spent too much on either, they can provide far more stress than comfort.