Can You Afford To Move To A Bigger House?

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Many of us dream of owning a bigger home, especially if we are in our first home and struggling for space. Perhaps since you bought your home you have started or expanded your family, or your needs have changed and you now need to work from home, or you want to host family and friends.

It is totally natural to want a bigger abode, but the key question to ask yourself is whether your finances will allow it. This is something that you need to think about before you do anything – what sort of amount can you afford to put down as a down payment, will you need to look at home loans and can you afford the ongoing costs of a bigger house – heating it and maintaining it?

Here, we look at a few signs that tell you whether you are ready to move to a bigger house.

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You have a low debt to earnings ratio

Most borrowers need to have a debt-to-earnings ratio of 43 percent or less (including their home payment) to get a mortgage, according to the Consumer Financial Protection Bureau. A mortgage with a greater debt-to-earnings ratio may be obtained, but you will have fewer options available to you. Add up all your monthly loans to find your debt-to-earnings ratio and divide them by your total monthly income. 

If your debt to earnings ratio is higher than the recommended amount, you may need to look for ways of reducing your debt before upgrading your home. Pay off things like credit card debt and car finance before you start applying for new mortgages and home loans.

You have insurance

Are you insured appropriately? No matter where you are in life, this is a good question to ask, but when you are thinking about purchasing a bigger, more costly house, it is even more important.

It is important to bear in mind that in the event of your death, your family is liable for all of your debts and payments, so it is essential that you have the right level of life insurance to be able to replace your lost income and pay off all of your debts in one go. 

Luckily, term life insurance, especially if you are young and healthy, is inexpensive and easy to buy. Before you buy a bigger home, make sure to get a few life insurance quotes and buy enough life insurance to cover your family.

You have savings and emergency funds

It is generally accepted that borrowers who have at least 20 percent to put down on a home enjoy the best mortgage terms and interest rates. Even mortgages backed by the government require a small down payment. However, you need to ensure you have funds greater than that to cover the costs of moving, cover job losses should that happen and ongoing maintenance and repair costs. Can you afford to replace your boiler if it breaks down? What about if your roof springs a significant leak?

You manage to keep to your monthly budget

If you are not still using a monthly budget, before upgrading your home and your mortgage payment, you may want to start.

Using a budget allows you to understand how much food, discretionary expenditures, car payments, and other bills are being paid. Without one, you can not truly understand how much you spend per month, how much is coming out, and how much you are saving.

You could set yourself up for a financial catastrophe if you add a new mortgage payment to the mix without getting a grip on your current finances.

Your credit score is decent

If you are hoping to get a mortgage with the best interest rate and terms, you will also need good or great credit. If you do not know how your score looks, it makes sense to check your credit score before you apply for a mortgage. After all, you could be completely turned down if it is not good enough, and this can adversely affect your credit score. 

You have taken all of the costs into account

You would also need to pay higher property taxes, heavier utility costs, and more for maintenance and repairs, in addition to a higher monthly mortgage payment. 

In other words, purchasing a bigger home means that you need more cash now and stashing away more funds for later. If you are worried that a larger home could send your finances into a downward spiral, you probably should listen to that inner dialogue and continue to work towards your financial goals before looking to buy a bigger house.

Sarah x

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