In Focus – SCCCU Blog

Q: I'm finally ready to buy a house after saving for years to get enough together for a down payment. Now that I'm officially shopping for a home, I'm wondering exactly how much I should spend. I don't want to be "house poor," and not be able to afford anything else, but I also don't want to be so afraid to stretch my budget that I pass up my dream home. What’s the best guidance here?

A: This is a big step! But before you start scrolling Zillow at midnight or falling in love with quartz countertops you might not be able to swing, let’s take a deep breath and get real for a moment. The truth of the matter is this: just because you're approved for a loan doesn't mean the number is the correct number for you.

Your Lender Doesn't Know Everything
Lenders only work with the information you provide on paper. They don't know how tight your budget might already feel. And ultimately, lenders are in the business of making loans, not protecting your long-term financial well-being. They really want to turn you into a customer, which is part of the reason why the vast majority of mortgages that are applied for in the U.S. — more than 80%, according to the most recent totals — are approved for borrowers. In other words, you're the only one who can make sure you're not overextending yourself.

Also, buying a home is different from most other purchases because it requires you to look far into the future. You’re not just thinking about what you can afford right now — you’re planning ahead (as much as possible) for the next five to 10 years. Will your income change? Will you start a family? Will you take time off work or start your own business? A lot of lending decisions are made with the assumption that everything in your financial life will continue going perfectly. But that’s not how real life works. It’s important to leave yourself some financial breathing room, just in case.

Don’t Count on Future Raises or Windfalls to Make It Work
Even if you’re not earning a large income yet, lenders may still approve you for a bigger mortgage under the assumption that your paychecks will get larger over time — that your income will grow steadily.

The problem? Life doesn’t always follow that script. Counting on future raises can leave you stretched too thin today. And while conventional wisdom once said you should “buy as much house as you can and grow into it,” that thinking has changed. Today, the smarter move is to buy a home that fits your current budget. Your home should not only be a comfortable place to live, but a place you can comfortably afford, not a financial gamble.

Be Cautious With Mortgage Terms
When you first start shopping for a home loan, you’ll likely come across different types of mortgages, and it's important to understand exactly what you’re signing up for. Some loans offer very low introductory interest rates — these often fall under the category of adjustable-rate mortgages (ARMs). With an ARM, your rate will eventually adjust, and it could go up significantly, depending on market conditions.

For most buyers, the safest bet is a 30-year fixed-rate mortgage. With this type of loan, your interest rate stays the same for the entire life of the loan. That means your monthly principal and interest payments will remain consistent for three decades, making it easier to plan and budget for the long haul. You’ll avoid surprises, and you’ll have a more accurate picture of what your home will cost you over time.

Think Beyond Your Mortgage Payment
When you think about how much you'll owe every month as a homeowner, it's easy to focus just on your monthly mortgage, but homeownership includes a lot more. You’ll also need to pay property taxes, homeowners' insurance, utility bills, maintenance, and potential repairs. You’ll need to (and want to) furnish it. Overspending on a home can impact your ability to save for retirement, handle emergencies, and maintain your overall well-being. The last thing you want to do is purchase a beautiful home only to have it stress you out financially!

How Do You Figure Out What You Can Afford?

1. Know Your Why. Start with your personal goals. Are you looking to stop renting and start building equity? Do you want to settle down in a particular neighborhood or school district? Are you planning to stay in one place for a while, or is this more of a transitional phase? Your “why” will shape your decision just as much as your finances.
2. Set a Real Budget. One of the best tools to help you get started is an affordability calculator that includes taxes and insurance. But beyond online tools, take a close look at your real-life spending. How much of your income goes to necessities? How much are you saving? Do you have other debts? Mortgage interest rates also impact how much house you can afford. Right now, rates are hovering around 6.8% nationally, which may feel steep compared to the low rates we saw around the pandemic. In fact, historically, 6% is pretty average. The key is to determine what kind of monthly payment actually feels comfortable for you.
3. Do Your Research. Your personal finances are just one part of the equation. Local markets vary widely, so it’s important to dig into the details of the area where you’re looking to buy. Look up real estate trends, property taxes, and the availability of homes in your price range. You can use resources like Realtor.com and Zillow not only to search listings, but also to explore affordability calculators, local housing forecasts, and research tools. And it’s worth expanding your search area — some hidden gem neighborhoods might offer better value than the ones everyone else is targeting. Working with a trusted real estate agent and/or a financial planner can also help you make smarter choices and stay grounded when emotions run high.

The most important thing is that you buy the house that fits your reality today, not the fantasy of what your life might look like in five years. And above all, remember that you are your own best advocate in this process.