There was a time when a simple formula for figuring out how much house one could afford was to figure 1/3 of one’s gross monthly income. However, in some areas, housing prices have inflated at a much faster rate than salaries and more and more, people are finding themselves putting as much as half of their incomes toward housing payments. The problem with overextending oneself when it comes to paying for housing without adequately figuring in other debt obligations is that it inevitably contributes to high foreclosure ratings.
Stick to What You Can Afford
Although many aspire to home ownership and having as much house as possible, it’s important to consider one’s other obligations when deciding how much of a mortgage payment one can afford. Remember that just because a mortgage lender gives you an amount that you can afford, that amount does not necessarily mean that you will be able to live comfortably. Mortgage debt could potentially put you in a financial crisis if an unexpected emergency arises that blows out your monthly budget. Leave yourself a monthly cushion for unplanned expenses.
It’s also important to prioritize. How important is your house? How often are you home? Do you place more emphasis on your car or the ability to be able to travel or social endeavors? These are all things to think about when allocating your monthly expenses, including your mortgage expenses. Giving yourself breathing room is essential to financial health. Keeping up with the Jones’s won’t seem so important when they’re filing for bankruptcy and you are not.