3 Signs You’re About to Take On Too High a Mortgage

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Getting in over your head on a mortgage could wreck your finances. Read on to see how to tell if you’re about to go overboard. 

In March, applicants looking for a mortgage loan faced a median monthly payment of $1,736, according to the Mortgage Bankers Association. Now that may seem like a lot of money or very little money to you, depending on your local housing market and your personal financial situation.

But either way, if you’re looking to buy a home, it’s important to not get in over your head by taking on too large of a mortgage. Here are some signs that you may be on the verge of doing just that.

1. You’re signing the absolute highest mortgage you qualify for

Ideally, you got pre-approved for a mortgage before embarking on your home search. Looking for homes with a pre-approval letter in hand can give you an advantage over other buyers, and it can also help you narrow down your search to homes within your price range.

But one thing you probably don’t want to do is take out a mortgage that represents the highest sum you’re eligible to borrow. That’s already a red flag that you may be stretching yourself too thin financially.

2. You’re signing a mortgage that will result in spending more than 30% of your income on housing

As a general rule, your monthly housing costs should not exceed 30% of your take-home pay. And that figure shouldn’t just include your mortgage payment. Rather, it should account for all of your different housing expenses, from property taxes to homeowners insurance to HOA dues, if they’re fees you’ll have to pay.

If your mortgage is going to drive you beyond the 30% threshold, that’s a clear sign that you may be making a big financial mistake. Spend too much on housing, and you’ll risk falling behind on your bills on a whole.

3. You’re already counting the bills you’ll need to slash to keep up with your mortgage

Maybe you’re signing a mortgage that won’t put you in a position where you’ll be spending more than 30% of your pay on housing. But even so, if you know from the start that taking on that loan will require you to make immediate spending cuts, then it’s a sign that you may be signing up for payments that are too large for your own good.

You shouldn’t, for example, have to cut back on smaller bills like streaming services or the occasional restaurant meal to be able to cover your housing costs. These small expenses should have a place in your budget because they’re reasonable ones to bear and lend to a nicer quality of life.

These days, home prices are pretty elevated despite a recent cooling of the housing market. So between that and higher mortgage rates, you may be looking at a larger mortgage no matter what type of place you’re buying. But be careful to not to sign up for a mortgage that’s going to mess up your finances and force you to constantly pinch pennies. You may be better off buying a less expensive home or waiting for home prices to drop on a whole.

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