What's Wrong With Stretching to Buy a House?

For many people, buying a house now feels like an impossible dream. The median sale price for houses in the United States hit $431,000 in the third quarter of 2023. And while mortgage rates have come down from recent highs, they are still far above what they were during the pandemic and in the years before it.

If you're hoping to become a homeowner but doing so would be just a little bit over your budget, you may feel tempted to try to stretch to purchase a property. Unfortunately, If you'd end up spending more than about 30% of your income on housing costs -- or even if you'd end up simply spending more than you feel comfortable with -- this is a really bad idea for a few key reasons.

1. You're making a very long commitment when you get a mortgage

The reality is, a mortgage is typically going to be paid off over 30 years. That is a very long time. While you might be able to scrimp and save for a few months to afford a purchase that's a little bit out of budget, it's going to be difficult or impossible to do that for decades.

While you may decide you can stretch to buy in hopes that your income will go up in the future, there's no guarantee that will happen any time soon. Unless you have a very clear reason to believe your salary will jump up dramatically (such as because you're finishing a medical residency or an advanced degree), you can't assume your future self will be able to solve the mistake your current self is making by overcommitting.

If you do think your income is going to provide you the funds to buy a house later, why not just wait until that happens and it's a sure thing?

2. The consequences of not making mortgage payments could be very bad

There's another really important reason not to stretch to buy a house. The consequences of not being able to afford it are really bad. Say, for example, you miss some mortgage payments. You could find yourself getting foreclosed on. Because of the fees and added costs of foreclosure, you could owe the mortgage lender a lot more than your loan amount. And you could lose most or all of what you put into your house.

Foreclosures also stay on your credit report for seven years, so during that whole time, borrowing money in any form could be difficult and expensive.

Even if you do manage to avoid foreclosure, you could find yourself constantly stressed about this potential fate -- which is no way to live your life for decades.

3. Other important financial goals could be compromised

Finally, if you stretch to buy a house and make yourself house-poor, you may not have the money to save for emergencies, save for retirement, or do anything else you need to set yourself up for a secure future.

If you miss decades of retirement savings because you can't afford to invest due to your housing payments, you will not have the money you need for a comfortable retirement. It will be too late to catch up.

To avoid this, make sure you're buying a house that's definitely within your budget -- and wait until you can make that happen. You can scale down your needs for a home, work on increasing your income, or save more so you can borrow less if you want to get into a house sooner without causing a whole lot of financial consequences you could really regret.