Here's What Happens When You Earn a Large Salary but Buy an Expensive House

Home prices are up across the board these days. So even if you'd rather keep the cost of your mortgage payments low, that may not be realistic. 

Case in point: The median existing-home sale price in June was $410,200, according to the National Association of Realtors. That's the second-highest price recorded since January 1999, when the group began tracking that data.

But what if you earn a pretty high salary and can therefore afford a home that's worth more than $410,200? You may be inclined to go for it, especially if a mortgage lender is willing, based on your income, to loan you the amount you need to pull off that purchase. 

But taking on too much house is a move you might regret no matter what your salary looks like. So it's important to limit your housing costs so you don't wind up struggling to keep up with your bills.

Don't get in over your head

If you earn well more than the median salary, then you may be able to afford more than what the median U.S. home costs. That makes sense. But before you sign a mortgage or make an offer, run some numbers to see what you can comfortably swing, keeping in mind that the amount a mortgage lender says you can afford based on your income isn't necessarily what you think you can afford. 

You should also know that as a general rule, it's best to keep your total monthly housing costs to 30% of your take-home pay or less. And those costs shouldn't be limited to your mortgage. They should include predictable expenses like property taxes, homeowners insurance, and HOA fees, if those apply to you.

So, let's say you bring home $10,000 a month after taxes and deductions. That means you can generally afford to spend $3,000 a month on housing. 

But that doesn't mean you should sign a mortgage that will leave you paying $3,000 a month. If you do, you're pretty much guaranteed to exceed that 30% threshold because you won't be leaving yourself any wiggle room to cover property taxes, insurance, or other recurring expenses you might bear.

Even high earners can fall behind on housing costs

You might assume that if you earn a large salary, you're automatically in a good position to buy an expensive house. But that's not necessarily the case.

If you take on too much house, you risk falling behind on not just your housing costs, but your bills across the board, regardless of your income. So it's really important to set a home-buying budget carefully. 

Also, remember that if you have particularly large expenses that the typical person doesn't, you may want to stay below the 30% threshold when buying a home. Let's say you have three young children in daycare, so your child care expenses well exceed what the typical household is looking at. That's reason enough to limit your housing costs to 25% of your income, or even less. 

Earning a large salary does not automatically mean you're in a good position to buy an expensive house. You may have other bills you're grappling with, and you may not have a very large down payment, leaving you with a hefty mortgage to cover. So before you rush to buy a home on the pricier side, run some numbers to make sure you're not making a mistake.