Consumer Affairs reports that a survey by Owners.com found over half of consumers are willing to spend more than what they’ve budgeted for when purchasing a home. But is that the smartest thing to do?
If you fall in love with a nice house, perhaps with the idea that it’s the perfect place you’ve been searching for, you may be tempted to spend more than you planned, but no matter how great that home is, it’s probably not the smartest idea. The same publication notes one expert (and most are in agreement) advises that higher-priced homes also typically come with increased monthly costs that can lead to an “expensive spending vortex” a financial risk that you’re much better off avoiding.
Ideally, after determining the answer to “How much house can I afford?” you should aim to spend less rather than vice versa. Here are a few reasons why.
You Won’t Have a Cushion for Repairs and Other Unexpected Expenses
When you buy a house at the top of your budget, or worse, spend even more, that doesn’t leave enough wiggle room for repairs and other unexpected expenses that are inevitable. That not only creates a lot of stress, but it can also put you in a black financial hole that’s hard to dig out of.
Your Quality of Life May Suffer
If you overspend, odds are, your money will be consumed by your mortgage payment. That often means no vacations and cutting back on other expenses for things like entertainment and activities. While those may not be a necessity, they do make life more enjoyable and can help reduce stress too. While you’ll probably be happy and excited initially, that feeling will soon start to fade.
Your Retirement Savings Will Suffer
When you spend too much on a house early on, it can mean not saving enough for retirement, or not saving anything at all as you can only afford your living expenses. You might neglect to join your employer’s 401(k) plan or other savings options like an IRA with the thought that you’ll wait until your income increases. But time goes by quickly and before you know it you’ve missed out on 10 years or more of savings. By purchasing less than you can afford it will free up money to save for a better future.
The Odds Increase That You’ll Be Forced to Move Again
If you overspend, there’s a much better chance that you’ll find yourself forced to move on due to the financial stress that high mortgage payment causes. That fabulous forever “dream” home can turn out to be more of a nightmare, requiring downsizing to free up money in your budget. That’s not only a big disappointment, but it comes with potential financial setbacks too.
