How to Avoid Overspending on Your House: 5 Simple Tips
We recently interviewed Nick Marascia, Chief Retail Mortgage Officer, Senior Vice President at Origin Bank, about how to know when the time is right to buy a new home. During our interview, one thing that Nick warned against was becoming “house poor” — that is, being burdened by a mortgage so large that you have trouble paying for other expenses or are unable to save for retirement. Buying a house beyond your budget can increase your stress and debt levels and require you to make uncomfortable changes to your lifestyle or career in order to pay your mortgage. Take our tips to budget smart and make the right decision when it comes to your next home loan.
1. Honestly assess your financial situation. Before you buy a home, one of the best things you can do is take some time to fully and honestly assess your finances. Look at your monthly expenditures, income, and debts and determine what type of home investment you can comfortably afford. Most lenders recommend that the monthly payments on all of your debt, including your mortgage, should not make up more than a certain percentage of your gross monthly income. Need help? Use one of our financial calculators to assess your budget.
2. Estimate future earnings and losses. Most people live in a new home for at least five years. Think about what upcoming changes might affect your income (and therefore your ability to comfortably pay your mortgage.) For example, a couple might anticipate that their earnings will increase as they advance in their career.
3. Choose the right home loan for you. Nick reminds us that opting for a 10- or 15-year mortgage is a great way to build up savings quickly. However, if the burden of making large mortgage payments every month will force you into accumulating other types of debt or dramatically impact your lifestyle negatively, perhaps a longer mortgage term is better fit for you. Talk to your lender or financial advisor before deciding what type of home loan is best for you.
4. Save up for a rainy day. Even if you think you can comfortably pay your mortgage in the future, the reality is that unexpected expenses can set back even the most prepared homeowners. Make sure you have enough savings on hand to cover house repairs, medical bills, or other “rainy day” expenses that could impact your ability to cover your mortgage payments.
5. Don’t compare yourself to others. Many people overspend on their house because they feel pressured to buy a house that they really can’t afford. When looking for a new home, don’t let pressure from your friends or family force you into a mortgage that isn’t the right financial fit for you. Talk to an expert like an Origin Bank team member and decide what mortgage will bring you a wealth of joy — without making you house poor.