How Much House?
You’re probably used to hearing the question “How much home can I afford?” After all, it’s on just about every financial website in existence. There are calculators for figuring this out, too. In thinking about your first home, I’d challenge you not to ask yourself this question at all. The more appropriate question would be “How much home do I need?”
Needs vs. Wants?
I’m not going to get into a needs vs. wants discussion. My purpose for this website is to give you tons of information about buying your first house, not to preach to you about how to spend your money.
But Consider This
But let’s say you have $10,000 to spend on a car, so you start looking at cars that cost $10,000. How long will it take for your eye to wander over into the next row at that beautiful piece of machinery that costs $11,000? If there really were such a thing as an “easy payment” (kind of an oxymoron, if you ask me), it wouldn’t be so bad. But no matter how much information you give them, someone who is going to take your money will never know just how you interact with your finances.
I had a loan officer tell me that I could afford much more house than I was asking him to approve me for. The reason I didn’t have him increase my approval limit is that I know how much I can afford, much better than the numbers on my paycheck or in my investment account can tell a lender’s calculator. They figure in average amounts for food and other necessities when they come up with their debt-to-income ratio.
But what if I like to spend $400 per month on clothes? I would be ashamed if that were the truth, by the way. Sometimes people have other hobbies and interests that take up their money too. The closer your mortgage pushes you to the limit of your finances, the less you’ll have to spend on other things you enjoy.
I have to stop thinking in terms of what I can afford and start asking myself what I’d do now if I still made the same salary that I did five years ago. The truth is, it would be a financial disaster of epic proportions! But that doesn’t stop me from wondering if financial freedom is more of a state of mind than a state of my bank account.