Never Allow Your House to Force you into Debt

For many Americans their house is their prize possession. It is a refuge from the hectic pace of life, a place where family memories are made, and for some people it's a status symbol which reflects their success. Although houses come in all shapes and sizes there is one thing that most homes have in common; a high price tag. In fact, for most individual's it is their single largest expense. If this expense is too large then financial difficulties begin to emerge. If the problem is left unchecked then there is a good chance that an individual's credit will be damaged and his level of debt will begin to grow. If you are in the market for a new home how can you determine how much house you can afford.

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• How much can you get approved for. Lenders will often grant approval amounts that equal 30% of an individual's (or couple's) monthly gross income.
• Determine your goals and lifestyle. Remember that the approval amount is you UPPER limit. In most cases you do not want to reach this level. It is very important to have worked out a budget so you will have an idea of what your expenses will be. Choosing the upper limit for a house may mean forgoing other expenses, such as, vacations, emergency savings plans or retirement funds. Attempting to have your cake and eat it too is a good way to accumulate debt in a hurry.

What happens if the type of house you want is a little out of your budget? Here are some options to consider.

• Wait to buy. One option is to wait a year or two before you buy. Use this time to accumulate additional money. A larger down payment may make your dream house affordable.
• Separate your "essentials" from "wants". Be realistic and realize that you are not going to find that 25 room mansion on a lake for $50,000. Determine what aspects of a house that you find "essential" and start with that. (i.e. a two car attached garage) Anything extra will be icing on the cake.
• Look at other locations. Sometimes you can have two identical houses with vastly different price tags simply due to the areas where they are built.
• Determine if location is the most important factor. If so you may have to compromise on the house that you purchase.

It is never a wise decision to buy a house that is above your means. By doing so you are placing your financial future in jeopardy. It is simply not worth the risk of damaged credit and excessive levels of debt. Determine a price range that fits comfortably in your budget and stick to it. It's a decision you'll thank yourself for later.

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About the author:

Mark Carney is a professional consultant with First American Debt Consolidation and Loans, a debt consolidation service specializing in financial education, credit counseling, and debt management services nationwide.