Buying a Home Without Maxing Out Your Budget
There are several situations that signify your arrival into adulthood and buying your first home is definitely one of them. While buying a home can be very exciting, understanding the financial responsibility of buying a home is extremely important. Not only will buying a home affect you now, but it can definitely impact your financial future too. When you take the first steps to speak with your bank and you have your pre-qualification letter in hand, there are a few things to consider before you start looking at homes.
The bank takes into consideration your debt-to-income ratio when determining the maximum loan amount you qualify for. Buying a home on the upper-end of your budget will leave you with a larger house payment and as your home appreciates, which is always the hope, your house payment may also go up to accommodate the cost of your property taxes and insurance, even with a fixed interest rate loan. Let’s not forget the normal operating costs associated with your utilities, maintenance, and HOA fees. These costs can and usually will increase over the years, also cutting into your monthly budget.
When we bought our first home, we were pregnant with our first-born. We purchased a home well below our maximum budget and were comfortable with the payment. What we didn’t account for was the high cost of daycare for an infant. Adding that expense on top of our current bills and our mortgage was a real eye-opening experience. Having children and the costs associated with it was not something we even thought about, even while being pregnant. We were so excited about bringing a baby into our new home, we didn’t consider exactly how much it would impact our monthly budget. Even if a baby is nowhere on your radar, are you due for a new car? Do you have pets and no pet insurance? The list could go on, but unexpected situations will come up. The question is, will your budget be ready to handle them?
Aside from your bills and your mortgage, what about your other financial goals? Are you trying to pay off a school loan, a credit card, your vehicle? Are you trying to save up for vacations? Investments towards your future retirement? Being able to have money to achieve those goals as well as maintain your current financial obligations are just as important. You don’t want to find yourself living paycheck to paycheck. You want to be able to afford a life outside of your home.
The bottom line is that you don’t want to find yourself in a situation where you are considered “house poor.” This happens when you have dedicated so much of your monthly budget to just your house payment that it leaves little room to even cover the cost of your other monthly obligations, let alone anything additional. Not only does it create unnecessary stress, but puts you at risk of losing the home you worked very hard to qualify for in the first place. Staying well below the maximum amount that you qualify for in a loan not only gives you the cushion you need, but will allow you to work towards increasing your maximum budget for the next home when the time is right.