Chris O'Shea
Buying a house is an exciting event. Especially when it’s your first one. The downside of all that first-time buyer excitement is that it can sometimes lead people to overestimate how much house they can afford.
Though there is some wiggle room, most experts say that you should keep mortgage payments to under 28 percent of your gross income. That number can help prevent you from buying more homes than you can afford. Essentially, keeping your percentage low frees up money for other areas. Owning a nice, big home is cool. But it’s not so great if mortgage payments chew up all of your income each month.
This seems like a fairly obvious idea: Don’t spend too much on a house because you won’t have any money left over. However, according to a report from the National Association of Realtors (NAR), first-time home buyers are surpassing that number. By a lot. The study found that the average first-time home buyer is spending about 40 percent of their gross income on mortgage payments. There are two main reasons why this is happening. One, mortgage rates are quite high — hovering just around 7.5 percent. Home prices are also increasing. The NAR report found that home prices increased in 82 percent of the metro areas it surveyed.
When shopping for a home, it’s important to avoid stretching yourself too thin. A nice home is great, but only if you can afford it.
Do One Thing: Use a mortgage calculator to ensure that you can comfortably afford the home you’re considering.
