Thursday, February 6, 2014

What You Can Buy and What You Should Buy Could be Two Different Things

When people are looking to buy a home their first question is always “How much do I qualify for?” That’s the perfect place to start your home search but does that mean you should limit your search only to that price range? Most experts agree that a home mortgage should not exceed 28% of one’s monthly income but is that the perfect answer?

Obviously every situation is different and the person that can best answer this question is the home buyer themselves. The real answer as to how much you should spend on your next home has a lot to do with your personality and not only your finances. What are your personal habits and how much spending money do you need to be happy? Some people are perfectly content taking their lunch to the office everyday while others enjoy the luxury of ordering out or eating at the company cafeteria. The real question is which one are you? No bank can answer that question for you. There’s no sense in buying the “perfect home” if it means sacrificing a lifestyle that you are comfortable with, right?

Aside from personal spending habits there is the question of your future plans as well. If that luxury home on the hill means that you will not be buying that boat next year as you had planned you need to decide which is more important. Do you really need that much acreage to build on, is that 5 bedroom home really necessary or are 3 bedrooms enough for your needs? Will overextending yourself affect important future financial goals such as investing some additional funds into your 401K or saving for your children’s college fund? The bottom line is that you can’t spend the same dollar twice so you need to make wise decisions.

The question here is not whether or not you should buy instead of rent. I’ve seen very few situations where renting made more sense than buying your own home but I’ve also seen homeowners sacrifice a lot just to pay a mortgage that may have been bigger than they really needed. I’m also not saying that one should not buy a home for the maximum amount approved by the lender; I am saying that it all depends on the amount of money that one needs to live a lifestyle that they are satisfied with.

If buying that dream home is what will make (and keep) you happy than by all means go for it! If however you can’t stand the thought of giving up those 5 star meals at the country club twice a week than maybe a slightly more modest home will suffice and you can continue to enjoy those things which bring joy to your life.

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