TUCSON, Ariz. - Most house hunters have a long list of what they want. But Consumer Reports cautions against buying a home that’s more expensive than you can comfortably afford. In a recent survey of home-buyers, one-third said they ended up spending more than they expected to, and nearly a third put down a higher down payment than they anticipated when they made the purchase.
“The general rule, in spending on housing is you only want to spend about a quarter of your take home pay," says Consumer Reports Money Editor, Tobie Stanger. "That’s so you have money left over for other goals, for example saving for retirement or paying for education.”
Tobie Stanger of Consumer Reports says to avoid overextending yourself, start by putting 20% down.
“It not only means you’re gonna have a lower mortgage, it also helps you avoid private mortgage insurance," says Stanger. "That’s a lot of money to save.”
Also, be sure to put money aside for improvements, repairs or unexpected budget busters.
“So you have cash on hand, a lower monthly nut, that puts you in a better position to weather a financial rough patch," says Stanger.
Some mortgage bankers use a different way to determine what you can afford, which may lead them to suggest you take on a larger mortgage. But Consumer Reports cautions that just because you’re approved for a larger mortgage, doesn’t mean you should be taking all of it.