I Asked Mortgage Experts How Much House People Regret Buying
When people set out to buy a home their first thought is often “How much house can I afford?” but mortgage experts suggest there’s a better way to conceive of that question. Homebuyer regret can follow after the papers are signed, when buyers realize the mortgage, maintenance and other ownership costs are taking up more than they planned.
Here’s how mortgage experts say buyers can determine how much house is enough or too much.
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The Biggest Regret May Be Buying at the Top of Your Budget
There isn’t one universally regrettable home price but buying at or near the maximum amount a lender will approve can be dangerous to your budget.
“Qualifying for a loan amount and comfortably affording that loan are two completely different things,” said Ashley Harris, director of homebuyer education at Neighbors Bank.
Lenders only look at the debts on a prospective buyer’s credit report and their income. They don’t factor in “your daycare costs, your streaming services or whatever you're trying to set aside for things like a wedding or travel,” she said.
Buyers who push to the top of their approval may not feel it for a couple of years, until something gives, financially. And even then, according to Jasmine Grove, a senior market analyst at BrightPath Loans, homebuyers may not regret the house itself, but “how tightly the monthly payment fits against income once life happens” such as a job change, a repair or a rate reset on a variable cost like insurance or property tax.
Aim To Keep Total Housing Costs Around One-Third of Gross Income
Though again there’s no universal answer to how much house a person should buy, David Wright, a loan officer and owner of TheWrightGuidance, recommended that buyers keep their payment below 35% of income and, more broadly, “buy below your means.”
You can see what this looks like if you play out theoretical numbers. A homebuyer earning $5,500 in gross monthly income would spend roughly $1,800 on a mortgage at around one-third of their income.
Budget for the Costs That Don’t Show up in the Listing Price
Buyers shouldn’t calculate affordability from principal and interest alone, either. Property taxes, homeowners insurance and maintenance can push the real cost substantially higher, and these can vary from property to property, Harris said.
Also, even a fixed-rate mortgage can come with a changing monthly payment because of escrow adjustments.
Harris recommended calling your lender and have them take that expected payment and add a realistic maintenance budget, somewhere around 1% to 2% of the home's value per year.
“That combined number is what you're actually committing to, not just the line item labeled mortgage,” she said.
And generic numbers only help so much. The only number that means anything is the one tied to the specific address you're considering, according to Harris.
Don’t Buy More House by Emptying Your Savings
Another way buyers wind up with “too much house” is by putting so much cash toward the purchase that they have little or nothing left afterward. A bigger down payment can reduce the mortgage, but other costs continue.
“Life does not pause after you get the keys," said Harris. "The washer breaks. An HVAC repair comes up six months in. Buyers who show up with no reserve feel that reality pretty quickly.”
Making a smaller down payment works better to keep real savings intact.
“A house with breathing room under it ages much better than an overextension that looked fine on paper,” Harris said.
Test-Drive the Mortgage Before You Buy
To determine whether the house you’re considering is actually affordable, Harris recommended calculating your complete monthly budget and, if the prospective mortgage would be higher than your current rent, saving the difference for several months before buying. That effectively gives buyers a trial run of the new housing payment while simultaneously building additional savings.
The house you’re approved to buy and the house you’ll be happiest owning may have very different price tags.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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