Buying more house than you can afford could be a huge financial disaster. In general, you should aim to try to keep your mortgage and other housing costs below 25% of your income. Otherwise, you could face a whole host of consequences including constant worries about foreclosure and an inability to devote money to other important goals like saving for retirement in a brokerage account.
If you live in an expensive market, you may feel like you have no choice but to spend more on a property. But, the reality is, you have other options besides stretching your budget and setting yourself up for a life of financial worries and a too-large mortgage payment.
Here are a few other key things you could do rather than overspending on a property and being left with regrets.
Consider a fixer-upper
If you can buy a home that needs a little bit of TLC, you could potentially save a lot of money. When homeowners fix up a property and make it more current, they end up being able to get a higher price for it.
Take, for example, a home with a dated kitchen. A kitchen remodel can substantially increase what home sellers get or a property. In fact, a homeowner who does a major kitchen remodel on a $500,000 home could end up seeing the price the home sells for increase by around $53,900, based on typical ROIs for kitchen upgrades.
If you can buy a house that doesn't have a remodeled kitchen for $53,900 less, you can live in the home as-is for a while as you save up to pay for updates. You'll enjoy lower mortgage payments for the life of the loan and will get to create the kitchen of your dreams rather than getting stuck with whatever the sellers put in.
Of course, you'll need to know what the costs of fixing up the property are likely to be in order to make sure you're paying a fair price for it. A builder can help you estimate that. And, you can decide what level of repairs you are comfortable with. For example, buying a house that just needs cosmetic upgrades could be a lot less hassle -- and a lot more viable -- than purchasing one with major foundation damage.
Expand your search radius
It's a fact of life that the most desirable locations are the most expensive to live in. So, consider expanding your search radius a little bit if you find homes in your desired area to be out of your price range.
You could choose an area on the outskirts of the city, for example, or pick a place that's not in the "hip" part of town. As long as you don't end up with a miserable and expensive commute, you may be a lot better off in a slightly less perfect location that comes with a housing payment you can actually afford.
Buy a smaller house
The size of a house can affect both the upfront and ongoing costs of homeownership. A bigger house usually has a higher price tag, higher property taxes, and higher utilities, maintenance, and upkeep costs.
So, ask yourself if you really need that extra spare bedroom or that huge kitchen or if you could be happy with a house that's not quite as large but that's more comfortably within your budget.
Delay purchasing a property
Finally, if you don't want to compromise on the location or size of the house, you could simply wait longer to buy and save up more money for a down payment (or delay until you get a raise and can afford higher monthly housing costs).
Waiting to buy a property can also give you a chance to work on taking other financial steps that could potentially make your purchase more affordable, such as paying down other debts or improving your credit score to get a better rate.
Any or all of these options can be much better than stretching to buy a house, so figure out which works for you before you jump into a real estate decision you regret.
