More Than 4 in 5 Americans Would Go $50,000 Over Budget to Buy a Home. That's a Huge Mistake
KEY POINTS
- Going over budget on a home purchase could make your mortgage payments unaffordable.
- Don't forget about peripheral housing costs, like property taxes, maintenance, and repairs.
- A good rule of thumb is make sure your total housing costs are limited to 30% of your take-home pay.
You could end up putting your finances at risk.
Buying a home is hardly an inexpensive prospect these days. Not only are home prices up on a national level, but so are mortgage rates.
In light of that, it's a little disturbing to hear that more than 80% of Americans say they would go $50,000 over budget to purchase a home, according to a recent survey by Cinch Home Services. And if you're about to make an offer on a home that puts you above your budget, you may want to seriously reconsider.
Don't put your finances at risk
It's easy to see why you might be tempted to go over budget on a home purchase. Maybe you ran the numbers and determined that you should stick to a home worth $400,000 or less. But lo and behold, you've found the perfect house -- one in your target neighborhood with extra square footage that doesn't need much work -- and it happens to cost $450,000.
You might then re-run some numbers and see that spending that extra $50,000 only increases your monthly mortgage payment by $300. And your thought process might then evolve into, "Hey, that's no big deal, I can side hustle some more to make up the cash, or cut back on other expenses."
RELATED: Mortgage Calculator
But spending that $300 more per month on housing might put you in a position where you're not just looking at cutting back on social outings and leisure spending. Rather, it may push you into a situation where you can't fully cover your utility bills, or another expense that can't be skimped on. And frankly, that isn't good.
In fact, as a general rule of thumb, it's best to keep your total housing costs to 30% of your take-home pay or less. And that 30% shouldn't just include your mortgage payment. Rather, it should include all of your predictable monthly housing costs, from property taxes to homeowners insurance. You may even want to include money for predictable maintenance costs in that calculation.
If stretching your budget to purchase a home means setting yourself up to spend more than 30% of your income on housing, then you may end up struggling to pay for not only your home, but your bills in general. So if you're going to go above the home-buying budget you've set, make sure that doesn't put you in a position where you might fall behind on different obligations. Doing so could damage your credit score -- and even put you at risk of losing the home you wanted so badly.
Be practical rather than passionate
It's easy enough to fall in love with a home and tell yourself you'll do whatever it takes to make it yours -- even if that means pushing yourself beyond your financial comfort zone. But remember, if your home-buying budget is $400,000, there's a reason for that. Going beyond it might seem tempting, but it's a decision you might regret for many years after the fact. So do your best to take emotions out of the equation and focus on whether the actual numbers make sense.
Alert: our top-rated cash back card now has 0% intro APR until 2025
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Related Articles
View All Articles