You heard the phrase – Champaign taste on a beer budget. Well – that sums it up! It is common for homebuyers to want more home than they can afford. This is called financial stretching. In some cases, financial stretches for buyers is a positive thing, but in other circumstances it spells out a financial disaster. Use the following tips to determine whether stretching is in your best interest or not.
Pros to Financial Stretching
- Spending more money to buy a newer home does have its advantages. Newer homes, on average, will need less upgrades and repairs, saving the homeowner money in the weeks, months and years to come. With the statistic that people generally move every 5+ years, buying a newer home allows you to spend that time enjoying it instead of working on it.
- Even in down economies, real estate usually is still a good investment and worth the stretch. We all need a place each night to call home!
- Examine the monthly payment. While it may seem like several thousand dollars more in the list price, the truth is that every $1,000 only adds $6-$7 to your monthly mortgage payment.
- The mortgage interest being potentially tax deductible may make financial stretches for buyers worthwhile. It is more expensive to own than renting – but it is worth to have a place to call your own and have a sense of pride of ownership!
Cons to Financial Stretching
- If you are not planning on hanging onto your home for very long, you could end up losing money in the up and down market cycles. This makes stretching not worthwhile.
- Job security is another thing to examine when trying to decide if stretching is worth it. If you have a job that is seasonal or unreliable, stretching may be a bad idea.
- If your financial future is uncertain due to an upcoming surgery, death in the family, or numerous other causes, stretching your mortgage may not be the best solution for you.
Once you examine your finances and these pros and cons, you can make a more informed decision about whether stretching is right for you.