How Much House Do You Really Need?

Hi. Welcome to The Finance Gym Action Plan for a Better Life with Money Video Series. My name is Stacey Powell and if you’re ready to not just know better but do better with your money, then you’ve come to the right place.

Today we’re going to be talking about buying a home. I could go on for hours about buying a home but I’m going to just talk about one concept today and that is how much of a home do you really need. I think we’ve all seen what happened in the big mortgage meltdown and hopefully you’ve gone to see The Big Short. Great movie to really help you understand some of what happened. A lot of people bought houses but they didn’t really know how much of a house they were buying.

If you don’t have a good mortgage banker or good realtor really helping you walk through this, it can get really complicated. Most professionals will say you should take out a mortgage that’s somewhere between maybe 26 percent and 37 percent of your total monthly income and that that’s doable. Yeah, 26 to 37 percent is doable. But one of the things they don’t talk about is the price tag that comes along with that because if you’re taking out a mortgage that’s 26 percent and that’s including property taxes, insurance, mortgage insurance if you need it, one of the things you’re not kind of thinking about is all those seaming costs for the new roof or landscaping or putting new window coverings on. Any of us that have bought a new house know exactly what that goes like.

So all of a sudden, when you take this dollar and you thought that you were just shaving off 26 percent of it to buy a house, well, it’s actually kind of more like this. That’s all of your dollar bill every single month, of every dollar that you have left to spend. If you make that decision to buy a house where 37 percent of your monthly income goes towards your mortgage and your property taxes and your insurance, and then you have all of the other stuff you have to spend on your house, you’ve only got half of every dollar left to spend to live the rest of the way you want to live, to go on vacations, to buy healthy food, to send your kids to summer camp. All the other things to fund your retirement, to have emergency reserves.

So in the book I go into much greater detail and I encourage you this is a page – if you’re getting ready to buy a home, go invest in buying my book and read the couple of pages around this because it’s really important if you want wiggle room to live your life. You don’t want every single dollar to be cut in half. It’s really an unsustainable way to live and I encourage you to think a lot harder about how much home you can afford.

If you would like to chat with me about any of this, I would like you to come on over to our Facebook group Team Do Better group and join us. We can have conversations that only people in that group get to see. You can also sign up for our newsletter over at sign up for the newsletter and subscribe to our videos down below.