Buying a House Can Be a 'Nightmare' in This Situation, According to Warren Buffett

You should heed Warren Buffett's advice to make sure you don't regret your home purchase.

Homeownership is often a good way to build wealth since property owners can acquire equity with each housing payment. Mortgages are also low-rate loans. Billionaire investor Warren Buffett has praised the 30-year mortgage as a great tool people can use to acquire properties. 

But while you can succeed financially if you're smart about the process of purchasing a home, it can also be a big mistake if you don't purchase the right house under the right circumstances. In fact, Buffett warned that one particular decision could turn homeownership into a "nightmare."

Warren Buffett warns not to make this mistake

Although he is generally a proponent of homeownership, Buffett shared an important caveat in a letter to shareholders 

"Homeownership makes sense for most Americans," the billionaire investor wrote years ago, referencing the affordable mortgage rates available at the time. However, he went on to explain that a "house can be a nightmare if the buyer's eyes are bigger than his wallet and if a lender -- often protected by a government guarantee -- facilitates his fantasy."

Essentially, Buffett was warning about spending too much on a property -- especially if you do so because you're caught up in buying the "perfect" house and you fail to pay attention to the impact this could have on your financial future.  

"Our country's social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford," Buffett said. Unfortunately, many lenders allow people to stretch their budgets, buying homes that aren't really in their price range and that cause them a lifetime of ongoing financial stress. 

How you can make sure your purchase doesn't turn into a nightmare

Buffett's wise words are ones every homeowner needs to read because the reality is, if you buy a home and can't comfortably afford the mortgage payments, this is going to have a huge adverse impact on all other aspects of your life.

If you are constantly worried about how you're going to make your house payment, this can make it really difficult to enjoy living in your home. It could lead to money fights with your partner since you'll feel like there is always a money shortage. And you may spend your nights lying awake, scared of losing your home. 

Any bump in the road could also make that fear a reality when you're barely making your payments. If you have to take time off or you lose your job, those huge monthly costs could quickly become unaffordable. And you might not have savings to fall back on if you weren't able to set aside money because you were spending so much on your mortgage in the first place. 

To avoid this, make sure your housing costs fit comfortably into your budget -- ideally, by keeping them below around 25% of your income. If you calculate by yourself how much you are comfortable paying, rather than borrowing as much as a lender will allow, you can make sure your home purchase doesn't turn into a nightmare as Buffett warns it could.