Don’t Buy A House You Can’t Afford
One trend in the real estate world is for people to buy a more expensive house than they could afford. This is because lenders have greatly loosened their standards for releasing credit in the last ten years. In other words, they will gladly loan you more money than you can comfortably afford to repay.
Mortgage payments used to be capped at 26 to 28% of your gross monthly income but now lenders let homebuyers borrow up to 50 percent or more of their gross income! However a reputable lender may not let you borrow more than 33%.
Not that this is a newsflash but the business of lending money for homes is a greedy one. Lenders know that you will probably do whatever it takes to keep your home even if it means denying yourself a vacation or retirement income and digging your self deeper into debt. They know that most homeowners desire to hang on to their homes despite insurmountable debts.
Another problem is that on top of the house that is too expensive, most homeowners do not factor in the ancillary costs of buying a house into their potential debt. This includes matters such as maintenance, repairs, improvements, renovations and decorations.
If you want to play the house buying game the smart way then your best course of action is to limit your total housing payments – principle, interest, taxes and insurance to 15% of gross monthly income or less.