3 Signs You're About to Buy Too Expensive a Home

by Maurie Backman | Published on Aug. 16, 2021

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Couple standing outside admiring a large, impressive looking home.

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Taking on too much house can be a big mistake. Here's how to know that you're getting in over your head.

When you're deep in the throes of a house hunt and you find a place you really like, it's easy to get caught up in that excitement. But are you about to purchase a home that costs more than you can really swing? Here's how to know.

1. You'll end up spending more than 30% of your income on housing

As a general rule, your housing costs, including your monthly mortgage payment, property tax bill, and homeowners insurance, should equal no more than 30% of your take-home pay. If you'll exceed that threshold, then you may want to rethink that home purchase.

To see what your home will cost you each month, use a mortgage calculator to figure out your monthly home loan payments based on the property's purchase price, your down payment amount, and the interest rate you think you'll qualify for. You can also use a mortgage calculator to see what your peripheral costs, like property taxes and insurance, might look like, but keep in mind that those figures may not be as accurate as your mortgage payment itself. To get a more accurate read, see what taxes are noted on the property listing and get quotes from homeowners insurance companies.

2. You're offering a lot of money above a home's asking price

These days, a lot of homes are being listed for higher prices than they normally would. Low mortgage rates are causing an uptick in buyer demand, and there's not a lot of inventory to go around, which means sellers can get away with asking for more money.

It's one thing to pay a seller's asking price, but it's another thing to make an offer that's well above it. Now in today's real estate market, you may feel pressured to go well above asking to get your offer accepted. But going that route could propel you into overspending on a home -- and regretting it afterward.

3. The home has a lot of features that will be costly to maintain

No matter how large or small your home is, you'll need to spend money maintaining it. But certain features may cause you to spend a lot more on upkeep, making your home too expensive for your budget.

If your home has a swimming pool, for example, you could spend thousands of dollars each summer to keep it in good shape. Similarly, if you buy a home with an oversized backyard, you may spend a lot of money on lawn care and landscaping. Consider the cost of maintenance along with your mortgage payment, property taxes, and insurance -- because upkeep is unavoidable.

Buying too expensive a home can have consequences. It can cause you financial stress, push you to fall behind on other bills, or, in a worst-case scenario, result in foreclosure if you reach the point where you can't keep up with your mortgage payments. Rather than run that risk, err on the side of being financially conservative when buying a home. Remember, there's always the option to upgrade your home down the line, but don't start off with a home that's a stretch from the start.

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