We are entering into peak homebuying season. Many across the country are looking to purchase a new home. And you may be one of them. Maybe you got a new job in another city. Maybe you feel like you’ve outgrown your current house. Whatever the reason, your head is on a constant swivel as you drive down the road, looking at the houses behind the for-sale yard signs.
Your home is likely the largest purchase you will make. Its financial impact will be significant. There will always be the temptation to spend more, to get a little larger house with an updated kitchen. Regardless of your stated price range, you will find yourself wondering if you can afford a slightly more expensive house. Be careful. Overspending on your new house can have significant consequences.
- You reduce your ability to live generously. God designed us, not to be hoarders, but conduits through which His generosity flows. There is nothing wrong with having a mortgage—as long as you eventually pay it off. But a house payment effects your generosity level, your ability to impact the community around you and beyond. Money is finite. An increased mortgage payment requires a reduction elsewhere. And often, generosity is the first to take a hit.
- You lessen your ability to pay off other debt. According to a recent study, those with credit card debt average approximately $7,000 of it. You may relate to that statistic. As mentioned above, money is finite. As your mortgage payment increases, your ability to pay off other debt decreases.
- You can struggle to save. Saving for emergencies or retirement are other areas hurt by overspending. You can miss out on vital years for your retirement savings. Now is not the time to crush your budget with a house payment. Now is the time to put money into your retirement savings plan.
- You become house poor. Those who overspend often find themselves unable to enjoy vacations and others activities. Their money is consumed by their mortgage payment. The more expensive home quickly becomes a burden rather than a blessing.
- You postpone one of your key retirement strategies. Spending less than you are able allows you to pay off your mortgage more quickly. In retirement, your house payment will likely be the second highest expense, behind healthcare. Why not enter retirement without a house payment? Buying a home should be a long-term strategy to free up future cash flow, especially for your retirement years. Avoid overspending and get that mortgage paid off!
- You may find yourself moving again. Those who overspend sometimes find themselves needing to move. Their budget cannot take the stress created by the mortgage payment. They thought they found their “forever home,” but it ended up being their “couple of years home.” To free up their budget, downsizing becomes necessary.
How much house can you afford? Figure out what 30% of your monthly take home pay is. That should be pretty close to the monthly payment you can afford. And remember to put 20% of the sale price down.
Have fun searching for your new home. Just make sure the one you purchase is one that you can actually afford.