PHILADELPHIA - If you don't want your dream home to become a financial mistake, listen up. Before you buy, you need consider a number of factors to accurately figure out how big of a mortgage you can really afford.
Chiara Norbitz and her husband Mike Grubiak just bought their first home.
When trying to determine their price range, they had two goals: keep their monthly housing costs below what they'd been paying for rent, and make sure they had enough leftover to cover all their other expenses and then some.
"We tried to break it into a pie where we were at least saving a certain amount of money every month," said Chiara.
Their bank pre-approved them for a certain number, but Consumer Reports Money Editor, Lauren Lyons Cole, says that number can be deceiving. Lenders look at how much they think you can pay them each month.
"But that doesn't mean you can make those payments and still save for retirement, still save for college and still manage to go on a vacation every year," she said.
Deciding how much mortgage you can afford is personal but Consumer Reports' experts say a good rule of thumb is to cap your housing costs at 25-percent of your take home pay. This should afford you a little wiggle room to keep up with anything that breaks down.
"You need to have money in case the air conditioner breaks or you need to replace the roof. Owning a home is very cost intensive so keeping your mortgage payments as low as possible will help you afford everything else that goes with it," said Cole.
In the end, Mike and his wife found a home they love for less than the bank was willing to loan them, leaving them enough room in their budget to start saving for the next big thing.
"We really want to have a nest egg right now for vacations, emergencies and eventually down the road you know having our first child," said Mike.
Having trouble calculating a number you can live with? Consumer Reports says working with a financial planner or a third party you trust could be a good move.
Important advice, because according to a recent Bankrate report, 80-percent of current homeowners say their mortgage payments make it difficult for them to save money.
And parents in particular have a hard time juggling their competing financial priorities.
For more information from Consumer Reports, CLICK HERE.
Send a breaking news alert
Report a correction or typo
Learn more about the 6abc apps