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How to's and money-saving tips from resident homeowner and mortgage professional, Cathy West

How much home is 'too much?'

How much home is ‘too much?’

Cost is perhaps the most important consideration when it comes to buying a home because of just how much people have to invest – both up front and over the course of decades – in making a purchase. Typically, this is going to be the single most expensive purchase of a person's life, and it looms large over personal finances for years. As such, it's important for buyers to make sure they're buying a home they can actually afford, and are careful to avoid talking themselves into buying "too much house."

There are a few basic rules of thumb that will help people avoid buying a home they can't really afford, and the simplest one is to set a hard and fast line, according to personal finance expert Dave Ramsey. As with anything else in the mortgage process, it's important to crunch the numbers and determine how much the monthly mortgage payment would be for any given home, based on the size of a buyer's down payment. If the mortgage payment exceeds 25-28 percent of their take-home pay, that's probably too expensive for shoppers to really afford.

It's worth noting, of course, that higher down payments will lead to lower mortgage payments going forward, and can end up saving homeowners five figures over the life of a loan thanks to reduced interest charges and so on, the report said. But if that's not an option in a short period of time, homeowners would be wise to move on to more affordably priced properties in their home search.

Doing the math
Of course, that homework doesn't have to be done for each individual property – and in fact, it shouldn't be, according to Forbes. Instead, would-be homeowners are likely to be better off if they do all that math before they even start shopping, and then seek pre-approval on a mortgage. Working with financial professionals will help them determine exactly what's affordable based on factors such as their debt-to-income ratio and down payment size, and that will inform decisions about the price range they should be shopping in.

Often, it's a good idea to pay down existing high-interest debts like credit card balances before starting the mortgage process at all, because this not only frees up some money every month that can go toward savings instead, but also makes applicants more attractive to lenders overall.

Avoiding a classic mistake
One of the issues that is all too common in the housing market, which any financial or real estate professional would warn against, is shoppers falling in love with a house and deciding they will exceed their carefully calculated limits to buy it, according to The Motley Fool. It's up to each individual to determine what they're comfortable with, of course, but avoiding that temptation to go above and beyond what they've determined is the most reasonable price point is vital to keeping a mortgage affordable for years to come.

With all that in mind, working carefully with a real estate agent or financial professional is vital to people understanding exactly what makes sense for them, especially if they're first-time buyers.

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