How Much House is Too Much?

When you first get mortgage pre-approval and start shopping around for a home, the varying prices for different types of properties may seem a bit dizzying. Even more concerning is the worry that you'll buy too much house or not enough.

With the right information, you can determine how much you can practically afford in a home, and what kinds of expenses you can expect once the purchase is complete.

Are Homes Getting Smaller?

If you take a look at Durango's new construction inventory, you'll see a nice mixture of townhouses, detached single-family homes, and even a handful of smaller cottage-style homes that seem to be more popular than ever in the eyes of many of today's home buyers. In fact, in case you haven't noticed, new construction homes that are being built in Durango and all throughout La Plata County are starting to follow a growing trend that's seemingly catching on all across the nation.

According to recent U.S. Census Data, the average size of a new single-family home is dropping, albeit ever so slightly. Nationwide, the median square footage of a new construction single-family home dropped from 2,465 to 2,392 square feet. In addition, the average square footage for a new single-family home also dropped over that same timeframe, from 2,658 to 2,616 square feet.

With such a strong level of pent-up demand among first-time home buyers waiting to make that transition from renting to owning, the smaller home trend isn't all that surprising. Home builders are finally starting to cater to the entry-level market, which should play a major role in how market conditions fare over the next couple of years.

And although smaller new construction single-family homes haven't quite yet reached the level of tiny homes in Durango, it's nice to see home builders finally giving first-time home buyers a chance to purchase something new.

Treat Your Pre-approval as a Maximum, Not a Minimum

Some people say that you should always buy a home at the top of your buying range because a lot of buyers regret buying something too small, and few homeowners regret buying larger. However, it makes sense to factor every housing cost into your ability to make payments. Some experts suggest that you make all of your housing expenses less than 25–30%of your gross income, including:

• Mortgage payments
• Insurance
• Fees and property taxes
• Upkeep

This calculation may lead you to buy a smaller or less expensive home than your pre-approval, but may pay off more in the long-run, giving you more cash on a month-to-month basis.

Be Realistic About Upgrades and Do-It-Yourself Projects

The magazines, websites, and television shows may make you think that doing your own home improvements and repairs is simple and saves a lot of money. What they fail to mention is that these upgrades can also take up a great deal of your spare time and effort. For example, you might preview a larger home or a property in a nicer area at a price at the top of your range, because it needs some repair work.

This might be an excellent deal for you—if you know what you are doing and are willing to put in the extra labor to make it happen. If you have never done significant home improvements before, you should seriously consider limiting your purchases to homes that are more or less move-in ready.

Consider Services and Maintenance

Your mortgage payment includes such things as principal and interest, mortgage insurance if required, escrow for property taxes, and other fees as needed. It does not cover the cost of utilities or maintenance for the property. If you buy a larger home, it will probably cost more money in utilities to heat or cool. The larger home may also require more window treatments (blinds, curtains, etc.) and probably cost more in general to maintain.

Take the opportunity to estimate utility bills for a home in your desired area with appropriate square footage so you can prepare to pay your bills each month. In many cases, the seller of the home may supply you with the cost of utilities of the home. Ask your real estate agent for assistance with home utility costs.

Balance Future Needs With Future Income

If you are a new home buyer, it may be tempting to buy a little more house right now and deal with payments that are a bit higher in relation to your income currently. If all goes according to your financial plan, you might expect to get promotions or raises to make those higher house payments and additional utility and maintenance costs. However, this desire should be tempered by realistic predictions.

Your friends and relatives may tell you that you should spend as much as you can on a new home because you do not want to buy something that is too small or basic for your needs. However, buying too much house has its disadvantages, and you should aim to avoid them. With these tips, consider all of the expenses related to homeownership and find a purchase price that will work best for you, now and in the future.