I’ve been in the market to buy a new house, and the process of finding an affordable property has not been easy. There are around 18% fewer homes for sale this year compared to last year, and the average interest rate on a 30-year fixed-rate mortgage was 7.09% as of Aug. 17, 2023, which is one of the highest rates in recent years.
With few houses to choose from and an expensive loan, I’m going to end up taking out a mortgage that leaves me with higher housing costs than I had before. Increasing housing costs is a big deal because a mortgage is a 30-year commitment. By buying a costlier house, I’d be reducing my available funds for the next three decades.
I wanted to make sure I was really ready to do that, so here’s what I did.
This helped me ensure buying a more expensive house wasn’t a big mistake
Before I moved forward with buying a costlier house, I took a close look at exactly what my new expenses would be. That’s important because purchasing a more expensive house doesn’t just increase my mortgage payments. It also means I’ll be paying more for property taxes and more for homeowners insurance. These costs are directly affected by the value of the home.
Once I knew exactly how much extra I’d have to spend each month, I practiced making the extra housing payments. This is a step I would recommend absolutely everyone take if they’ll be upping their home expenses, whether you’re renting a more expensive place or buying one. Here’s how to do it:
- Figure out exactly what the difference will be between your current housing costs and your new ones, including all added expenses such as property taxes, homeowners insurance, utilities, and maintenance. So, for example, if your current total costs are $1,500 a month and you’ll be spending $1,800 a month at your new place, you’d be increasing your payment by $300.
- Add the extra to your savings account each month and treat this as a required bill. With the above example, that would mean making your regular housing payments and then transferring $300 a month into savings.
I did this “practice” exercise for five months before moving forward with making an offer, and I’d recommend doing it for at least that long — if not for six months or longer.
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Here’s why a practice housing payment is so important
Practicing making larger housing payments before you actually commit to a new mortgage loan is a really great way to make sure you don’t regret increasing your housing expenses.
In theory, it can feel pretty easy to absorb an extra $300 or $500 or whatever amount into your budget. But, in practice, it can mean making uncomfortable sacrifices. Once you’ve taken out a mortgage or signed a lease, it’s too late to just back out if it turns out you really can’t afford what you thought you could.
By practicing the payments ahead of time, you’ll see how it feels to live with less once you’ve moved up in the world. If you don’t really miss the money, then you’re good to upgrade. If you struggle, it’s way better to know that before you make a big commitment. Of course, as an added bonus, you can also keep that extra money you’ve put into savings to help you with the costs of your move.
If you’re thinking about buying or renting a more expensive house, start making your practice payments today so you’ll be ready to make an informed choice when moving time comes.