A man removes a Jenga block from a stack of blocks with a house on top.

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Home prices have been rising for months throughout the country, which makes it more difficult to buy a home. The low mortgage rates that fueled buyer demand can help offset higher home prices -- but only to a point. In fact, in November, the average mortgage taken out to buy a new home was $357,554, according to the Mortgage Bankers Association. That's up from $355,684 in October. The question is, can you afford to borrow that much for a home?

How far can you stretch your budget?

As a general rule, your monthly housing costs should not exceed 30% of your take-home pay. Those costs include:

  • Principal and interest on your mortgage
  • Property taxes
  • Homeowners insurance
  • Private mortgage insurance, or PMI, which applies if you don't make a 20% down payment on your home purchase
  • HOA fees, which are monthly dues you'll need to pay if your property is part of a homeowners association

Use this calculator to see what your monthly principal and interest payments will look like and whether you could afford a $357,554 mortgage. Assuming you take out a 30-year fixed loan at 2.779%, which is the average rate as of this writing, you'd be looking at monthly principal and interest costs of about $1,470. From there, you'll need to figure out what property taxes you'll be liable for, which should be included in the property listing. You'll also need to get quotes for a homeowners policy, and determine whether PMI or HOA fees apply. 

Let's say that between the $1,470 we just calculated and all these other items, you're looking at $2,000 a month in housing costs. That means you'd need to bring home $6,667 a month to keep your housing costs below 30% of your pay. If your paycheck isn't at least that high, you'll want to proceed with caution before taking out a $357,554 mortgage. 

If the home loan you commit to is too high, you risk falling behind. Initially, that could damage your credit score. Over time, it could put you at risk of foreclosure. Plus, by overextending yourself on a mortgage, you'll open the door to a world of stress. So if you can't afford the average mortgage amount today, don't sign up for it. 

You could try to buy a lower-cost home instead. Or hold off your search for a while. If you sit tight, you can save more toward a down payment and so borrow less. Plus, home prices could come down in 2021 as inventory opens up. If mortgage rates largely stay the same, delaying your home purchase could make for a better situation, financially speaking. 

Set a limit

When you're eager to buy a home and there aren't many to choose from, it can be tempting to stretch your budget. A better bet, however, is to set a mortgage limit and stick to it. It's easy to let emotions get the better of you when you're looking at a home. You may find a place that seems perfect for your family, but if it's out of your price range, it's a bad idea. Establishing an upper limit could help you stay on track and avoid making a huge mistake.

Furthermore, you may want to take on a $357,554 mortgage to buy a home, but that doesn't mean a mortgage lender will agree to that amount. It pays to get pre-approved for a mortgage so you can see how much you're eligible for. That way, you'll avoid hiccups in the course of your home search.