Buy a Home You Can Afford With the Mortgage Suitcase Trick

By Ben Edwards on 26 November 2012 (Updated 24 June 2013) 1 comment
Photo: foilman

Raise your hand if you’ve ever tried to stuff more than you really need into a suitcase. You begin with good intentions, wanting to make sure you have everything you need for your trip. You don’t really know if you’re going to need that extra sweatshirt, but you throw it in just in case. Before you know it you’re sitting on the lid of your overflowing suitcase just to get it closed. Although you’re finally able to zip it up, the real bummer is that you have to drag around that heavy suitcase your whole trip.

Unfortunately, this scenario of trying to stuff in more than you really need isn’t just limited to packing your bags. When buying a home, it’s easy to convince ourselves to buy more than we need even though it stretches our budget. As a result we end up dragging around tens of thousands of extra mortgage debt for the life of our 15-30 year loan.

The mortgage suitcase trick is simple and can help you avoid buying too much home. Picture your housing budget as a suitcase. Every time you think about adding another feature or upgrade during your home buying decision, ask yourself if you really want to lug around the cost of that feature for the next 15-30 years.

While the mental image of a heavy suitcase busting at the seams can be an overspending deterrent, I know sometimes it helps to have more concrete guidelines. So here are four tips that can help you avoid overloading your mortgage suitcase. (See also: Quiz: Am I Really Ready to Buy a Home?)

1. Know Your Limits

Before you even start looking at homes figure out how much house you can afford. Just because you’re pre-approved for a certain amount doesn’t mean you have to spend that much or that you can really afford it. 

It helps to run through some “what-if” scenarios to future-test the limit you decide on. What if one person decides they want to stay at home with the kids? What if you lose your job for six months? Whether you’re looking at a 15 or 30 year loan, a lot can change in your life during that time, so try to take that into account.

2. Define Your Priorities

There are many different factors that come into play when you’re trying to find the right place to live. Chances are you’re not going to be able to get everything you want in a home, so it helps to prioritize what is most important to you.

This list will come in really handy when you’re comparing multiple properties and having a tough time choosing which you want and how much money to offer the owner.

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3. Don’t Shop Up

My wife likes to watch these house-hunter shows that start with the potential buyer listing off everything they’re looking for and what they want to spend. Many times the real estate agent will tell them they can’t get everything they want at the price they’ve set and will proceed to show them more expensive homes.

Once you see the home that meets all your criteria, you’re going to want it. However, if you can’t afford it then, you’re just making yourself unhappy by looking at it. Two unfortunate scenarios often result from shopping up:

  1. Your emotions overcome logic, and you’ll break your budget to buy the home.
  2. You don’t buy it but “settle” for less and are unhappy with the home you buy.

4. Beware Payment Justification

When you’re going through the process of buying a home, most everyone involved will be happy to tell you that a more expensive property “only raises your monthly payment by a little.” Your realtor wants you to buy. Your bank is probably happy to lend you more. Sometimes your spouse/partner/friend will even jump on board and argue the case that another $20-30K doesn’t raise your payments that much.

If you’ve done steps #1 and #2, then you’ll know what you can afford and what’s important to you. Don’t let other people talk you into spending more than you’re comfortable with. You’re the one who has to get out of bed and go into work every day for the next 20 years to pay off the mortgage.

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Kat

As a renter, these tips are really helpful for me, too. I found myself "shopping up" and "justifying the payment" when we were apartment hunting last year. We thought, "Oh, we're both doing well in our jobs. We can handle this increase in rent. It's not that much."
.. Then I lost my job. After a few months, I found a new job, only for my husband to lose his the very week I had started my new job.

Now our lease is almost over and I'm looking to find an apartment that's more within our limits. Good, solid advice.

Thank you for presenting these ideas clearly in your writing. Keep up the good work.