Don't Buy the Home the Bank Says You Can Afford

Don't Buy the Home the Bank Says You Can Afford

Several years ago, when we were shopping for a home, I was surprised at how much the bank said we could afford.  Perhaps I am conservative, but having a house payment that amounted to about 40 percent of our total income seemed just a little bit excessive.

While it is definitely tempting to buy a larger house, simply because some computer program the bank utilizes says we can afford it, the reality of trying to make those payments can be a serious drain on not only our finances but also our mental wellbeing. 

These days, lending requirements have become much more stringent, but the fact is, the more you borrow, the more the bank will make on your loan.  For that reason, you should be skeptical about the amount your bank preapproves you for.  Just because they say you can afford it doesn’t mean you actually can.

When you are preparing to shop for your house, sit down and take a realistic look at how much you can comfortably afford.  Take into account the extra amount you will pay toward insurance and property taxes, and make a conservative estimate of the house payment you can pay.

Getting a smaller house with a smaller payment will be much less stressful, although perhaps a little disappointing, than struggling every month to make a payment you can’t really afford.  By starting out with a very affordable home, you can increase your payments as your income increases, allowing you to pay off your loan more quickly, or upgrade to a pricier home as your situation changes.  It is much easier to upgrade later than to downgrade if it turns out to be too much money.