My Salary Has Increased. Am I Ready to Upsize My Home?

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The more you earn, the more house you can generally afford. Read on to see if you’re ready to buy a more expensive home. 

When you first sign a mortgage, there are different factors your lender takes into account when determining how much you can borrow. One such factor is your salary.

But what if you’ve started earning a lot more money at work — perhaps on the heels of a promotion? You may be inclined to upsize to a larger home now that your salary has increased. But is doing so a financially sound move?

Make sure you don’t get in over your head

As a general rule, it’s important to keep your housing costs to 30% of your take-home pay or less. Doing so could help ensure you’re able to keep up with your housing expenses, and all of your bills, without running into any issues.

Now, let’s say you were bringing home $4,000 a month when you bought your current home, and you spend $1,000 a month on housing. That’s a reasonable percentage of your income — 25% — to spend to put a roof over your head.

If you’ve recently gotten a major bump in salary, to the point where you’re now bringing home $6,000 a month, then you may be able to afford to spend up to $1,800 a month on housing. So if that’s the case, and you feel you need more space, then you may want to upsize.

Doing so isn’t necessarily a bad idea if you can find a home that allows you to stick to that $1,800 limit. But that may be a pretty big “if.”

Remember, mortgage rates are higher today, so chances are, the interest rate you pay on your mortgage is going to go up once you get a new home loan. In fact, the average rate for a 30-year mortgage is 6.39% as of this writing, according to Freddie Mac.

But, on the flipside, perhaps you have a lot of equity in your existing home you can put toward your down payment. So all told, you may not have to borrow that much, and upsizing might be financially feasible, even if you’re signing up for a mortgage with a higher interest rate.

Take all of your housing costs into account

When we talk about keeping your housing costs to 30% of your income or less, that doesn’t mean your mortgage payment only has to come in at 30% or less. Rather, it means that all predictable home-related expenses, including property taxes and homeowners insurance, need to keep you at or below that 30% mark. So you’ll need to run the numbers to make sure that’s doable.

Also, keep in mind that if you upsize your home, your peripheral costs are likely to increase. You’ll probably spend more on maintenance and utilities, for example, if you go from 1,800 square feet of living space to 2,900 square feet. So you’ll need to make sure you can handle that higher expense.

Finally, before deciding whether to upsize or not, make sure it’s worth it to spend more on a home. Even if you can afford the more expensive mortgage, property taxes, and other expenses, every extra dollar you spend on housing is money you won’t have for other things, like hobbies and vacations. So you’ll need to ask yourself if it’s worth having to potentially give some of those things up.

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