How Much Mortgage Is Too Much?

The American dream of homeownership usually comes with a monthly mortgage payment. Often home buyers are tempted to buy a home priced higher than they can comfortably afford. First-time home buyers are especially susceptible to this. Usually they forget to include the costs of taxes, insurance, and repairs when creating their budgets.

Types of Mortgages

Most mortgages require monthly payments that include real estate taxes and hazard insurance in addition to the principal and interest. Mortgage terms range from 10 years to 40 years. The rates can be fixed for the entire term or adjustable each year. Adjustable rates can move up and down, taking your payment along with it. Fixed-rate loans are less risky because the payment cannot change; however, adjustable-rate mortgages usually have lower rates and payments initially.

Your Lifestyle

Your desired lifestyle plays an important part in determining how much mortgage is too much. Some homeowners forgo other luxury expenses to afford a larger home. Some homeowners do not want their lifestyle to change and so are willing to buy a less expensive home.

Lender Requirements

Mortgage lenders earn money based on a percentage of the loan amount. Larger loans make them more money. They still have to set a limit but will encourage you to buy as much home as they think you can afford. Most lenders allow homeowners to spend up to 45 percent of their gross monthly income on the combined payments of the mortgage and all other debt payments. If a couple had a combined gross income of $6,000, the mortgage company would allow the mortgage payment, car payments, minimum credit card payments and any other debt payment to equal up to $2,700 per month. This leaves only $3,300 for food, gas, health insurance, utilities, income taxes, savings, retirement and any other monthly expenses.

Personal Budget

Determine your own monthly budget. Examine what you are spending now and compare that to what the new house would cost each month. If you expect the new payment to exceed what you are paying now, try living on that budget. If you pay $1,200 in rent and the new house payment is $1,500, save the extra $300 and do not touch it. If you can go six months without needing that $300 and are satisfied with your lifestyle, the new payment may not be too much. If you have to use the $300 or are giving up things or activities you want back, it may be too much mortgage.


Only you can decide if a mortgage is too much mortgage. Perhaps you foresee a raise of income that will make the new payment very affordable in two years, but it will be tight until then. If so, you must decide if it&#039;s worth it. Leave room for savings with the new mortgage payment, and if the home needs repairs it&rsquo;s your responsibility to pay for them. The mortgage might be too much mortgage if your budget cannot handle the required home repairs without cutting back on essentials.

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