Is Living in Your House Eating You Alive?

Have you ever wondered whether you are spending too much money on your home?

As any homeowner will tell you, running a household involves many bills, such as mortgage or rent and utilities. And of course, there is regular maintenance and repairs, even if not significant, but just for the simple wear and tear caused by day-to-day living. Taking this into account, is owning your home a viable financial proposition or too much for you right now?

To answer this question, you first of all need to find out what the definitions are of "too much" or "sufficient." Traditionally, the rule of thumb as to how much one should spend on a house has always been three and a half times your annual income, with monthly mortgage payments of around 25% of your monthly net salary. However, treat this generality with caution since it relates to the average guy on the street and not to any one individual. For instance, if you think that your job may be at risk or your car is on the fritz, now may not be the ideal time to commit to monthly mortgage payments based on your current salary. Take a look at your own individual situation before you decide.

Another important point to keep in mind is the difference between a new property's price and the total cost of acquisition. The total cost of acquisition includes the cost of the property, lawyer fees, renovations, moving costs, and miscellaneous expenses such as curtains and new towel rods in the bathroom. The hidden costs can really add up, so they should be part of your total housing budget. Don't forget to factor these into any decision you may make.

Once you know what you can afford to spend, consider buying a less expensive property. After all, since the future is always unknown, it may not be wise to overextend yourself financially.

Keep an eye on your current housing costs. If it's difficult to meet your current obligation, it may be impossible (and unwise) to commit to a larger monthly mortgage. Consider your lifestyle: is your family (and by extension monthly budget) growing? Are you planning an expensive vacation? Are wedding bells - and bills - ringing for your children? Make sure that your future financial obligations and goals won't conflict with the property's purchase, since your house needs to fit into your overall financial plan.

Buying a house may be a solid way of building equity over the long term, but before you make the investment, assess whether you can afford it.

Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual's special position and needs. Past performance is no guarantee of future returns. Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA and SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company.

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