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By Tara-Nicholle Nelson | Broker in San Francisco, CA

How Much House Can You Handle? 3 Steps to a Smart Decision

Once upon a time, a widely-used rule of thumb among real estate experts and home buyers alike was to buy as 'much' home as you could qualify for, as soon as you could qualify for it: even if you didn't need the space or extra expense. Back then, big homes were en vogue, mortgage money was free-flowing, and all homes increased in value so rapidly that it was seen as foolhardy to buy something smaller and lose out on the potential appreciation you'd get for every extra bedroom or square foot you coulda, woulda or shoulda bought.

Fast forward a few years, and it's pretty obvious that this rule of thumb has definitely changed with the real estate market. The housing market crash turned McMansion-villes across the nation into slumburbias full of huge, vacant, foreclosed homes. Smaller homes closer in to urban job centers have become more desirable than ever, due to their relatively recession-resistant values, and lower associated costs of operating, maintenance and commuting.  At the same time, the zeitgeist has definitely moved toward buying a less expensive home than your maximum approved mortgage amount. And everyday homeowners are more and more concerned with the carbon footprint their daily lives are leaving on the planet.

For those of you facing the prospect of deciding exactly how much house you can handle, here are three buckets of considerations I strongly recommend you incorporate into your process:

1. What do your future family and career look like? Answering the question of how much home is the right 'amount' for you requires putting your visionary hat on. One of the reasons previous generations of buyers have erred on the side of buying too much home was that it seemed easier to deal with the problem of having too much space compared with the challenge of having too little. 

But that's a costly decision-making shortcut, as bigger homes cost more to upgrade and repair (with bigger plumbing and other mechanical systems, and larger surface areas of flooring, wall spaces to paint and things like counters and cabinets) and more to operate (heating, cooling, landscaping and even property taxes are generally more expensive for larger homes). Also, the costs of making the mistake of buying too much home on today’s market can be hard to reverse, as homes generally take longer to offload - especially at a profit - than they did at the top of the market.  

Not only is buying too much home an expensive mistake, it’s also an unnecessary one. The way smart buyers avoid it is by taking the time before they  even begin house hunting to get serious about forecasting the space and activity needs of their families (or other housemates) and how they are likely to evolve over the time you expect to own the home, as well as how their career path(s) are likely to intersect with that timeline.  

Given the tough-to-predict ebbs and flows of home values, today’s smart buyers target homes that should work for the space needs of their growing and shrinking families for at least 7 to 10 years. This helps avoid the trauma and drama of being stuck in an upside down home that is too small or too large for your needs. Actually, with today’s uber-low home prices and interest rates presenting what many buyers feel is a once-in-a-lifetime opportunity, I’m hearing lots of talk from young people about buying homes they hope to stay in for even 20 or 30 years!

Given this rebirth of America's traditional long-term perspective on homeownership, and modern changes in how nuclear families are composed, the space needs analysis of a smart homebuyer are quite a bit more complex now than they used to be. 

In assessing how much house they want and need vs. how much might be too much, buyers must consider any of the following life changes that might happen in the time they expect to own the home:

  • marriage or mating up, 
  • having or adopting kids and animals (and how many), 
  • shipping kids off to college or their own separate households,
  • adult kids staying at home or returning home, 
  • aging parents or other extended family members moving in, 
  • whether and when they might need to move for work,
  • what work and other activity needs will need to be able to take place in the property over time, and
  • how much - or little - ability to reconfigure, expand or even rent out unused spaces the property will allow.

2. What's your bandwidth for fixing, maintaining and engaging?  The handling that has to happen with a home ranges from minimal to massive, in both cost and lifestyle impact. As such, deciding on the optimal level or ranges of the following is an essential step of your ‘how much home can I handle’ calculus:

  • fixing (DIY or otherwise), 
  • ongoing home maintenance, and 
  • needed involvement with Homeowner’s Associations and the like.

As I see it, the issue of bandwidth is a hybrid phenomenon that is about overall resources: time, energy, interest level and cold hard cash, to name a few. The combinations of these resources are endless though, fortunately, the tradeoffs they pose vis-a-vis each other are relatively predictable. For example, do you have the time, inclination and money to deal with the ongoing maintenance of a sprawling ‘50’s rancher on a big suburban lot?  Or would you rather pay a monthly maintenance fee and dues and limit your largest ‘home work’ obligations, so to speak, to attending the meetings of your building’s HOA?  

Or do you, like me, fall somewhere in between these extremes, with little interest in personally swinging a hammer or engaging with neighbors around shared walls and finances, pointing you to prioritize single family homes that are in tip-top shape (or at least a home you can afford to pay the pros to make that way).

Working through this step is really about knowing yourself, your budget and the sort of lifestyle you want to live for the years your own the property. It's also essential here to work with your local agent to get educated about things like using a home warranty plan to minimize your exposure to big home repair costs, and what any individual HOA does or does not handle for its members.

3. What can your finances sustain, in the short- and long-run? When it comes to homes, ‘muchness’ is not just a matter of space, it’s also a matter of money. In fact, some would actually say that to buy smart is to allow the boundaries of your financial resources to trump all the rest.  I like to take a more holistic approach, first scoping the space needs and bandwidth issues that weigh heavily on whether a fixer or a condo or a single family home or a home in move-in condition makes the most sense, as these factors should also be balanced in the decision-making about what is affordable immediately and over time.

Answering this question of financial sustainability is not as simple as buying a less expensive home than you’re approved for, building in room for an unexpected interruption in income someday (though that’s not necessarily a bad move). It might be complicated, as all the line-item questions, answers and outcomes of questions 1 and 2, above, must be included in the number-crunching that goes on in number 3.  

For instance, if you are buying a low-cost foreclosure fixer, you may need to count on some bulky up-front repair costs and even factor in the increase in property taxes that may occur as a result of your home’s assessed value going up when you secure permits for upgrading or expanding the place. If you are considering purchasing a place with space for an adult child or aging parents to move in, can you factor in their income or some of the proceeds of the sale of their home to the resources available for the purchase or payments of the home you’re planning to buy?

Agents, Buyers and Homeowners: What other questions do you suggest buyers ask themselves in figuring out how much home they can handle?

P.S. - You should follow Trulia and Tara on Facebook!      


By danirncnn1,  Wed Apr 4 2012, 20:24
Helpful! Thank you.
By Jspellen,  Thu Apr 5 2012, 05:33
Thanks for sharing this.
I spoke with a lender who based my loan amount according to my gross income (not my net pay). When I looked at what I needed to pay per month for a $440k mortgage, I wanted to slap him. I have other obligations in my life (which he was aware of) and I am not going to pay a mortgage that's more than a weeks paystub! I looked at him with such disbelief. I just ran out of his office and start screaming... FRAUD! SCAM ARTIST ON DECK! LOL!!! This is how a first time home buyer could get into trouble. We have to understand and realize what we are getting into and what our monthly mortgage would be for the NEXT 30 YEARS!!! I know exactly that I am not and cannot afford a mortgage payment over $2500 per month.
By Helen Oliveri,  Thu Apr 5 2012, 09:23
Great smart buying tips, Tara.
By Namir,  Thu Apr 5 2012, 09:42
I want to buy townhouse 3bed 2bath ....price from 60000---to 80000$ I Looking in mont prospect ..paLatine..wheeLing...arLington hiegts what ever anther aerea cLoser from these...thank you
By Bryan Dillow | 309-531-8309,  Thu Apr 5 2012, 09:47
Nice article! I agree with the first time home buyers needing a great loan officer. A quality mortgage company will scold loan officers that stick a buyer in a property they can't afford! If they won't as a Realtor we should...Our relationships are a direct reflection of us as agents. Thanks for the info! I
By Joanne Bernardini,  Thu Apr 5 2012, 09:48
This addresses a lot of the questions that people don't always consider when purchasing a home. I especially like the section on upgrades of the future. There was a time when Formica counter tops were the great thing to have, then came Corian and now granite! Each of these surfaces were more expensive than the last. What's next? If you have 10 ft. to replace it is a lot more doable than 30ft! Bigger isn't always better!
Joanne Bernardini
Sales Associate
Keller Williams
One Atlantic Ave.
Ocean City, NJ
By Norma,  Thu Apr 5 2012, 10:26
this is absalotly right, we bought a home built in 204 it is over 2000.000 sq ft. jaust for tow of us on socal sacerty. we paed cach for over 3 yeas ago now we are having a hard time just baing the peroperty tax & home insherunce. on it now we can.t sell it whirh out taking a lose on it. so allway,s look at the tax.s and what it well coast you to insue it.befor you buy.
By Embracegrace,  Thu Apr 5 2012, 10:37
One more thing to consider when buying or building a home is accessibility. Even if you aren't planning to live in the house for the rest of your life, an accident or fall can render your house useless if the layout and design isn't able to be retrofitted easily. I should know. I live with a brain injury. Eight years later, I now live in a fully accessible house that we built. I don't have mobility issues at this point, but it'd be foolish not to build with future limitations in mind.
By Ignaciovega33,  Thu Apr 5 2012, 10:51
thank you Tara exelent advice
By Dana Brown,  Thu Apr 5 2012, 10:59
I always suggest to my buyers that they consider the worst homes in the best neighborhoods! You can "fix" the house and add instant value to both your home and the neighborhood. Conversely, buying the"best" house in the neighborhood may be an ego trip, but it is not smart. That home's value may well DEcrease as the neighborhood declines!
By gt2000cam,  Thu Apr 5 2012, 11:13
Awesome insight. Thank you Tara
By Michael Galicia,  Thu Apr 5 2012, 11:18
This is really good stuff Tara. It is really difficult to get customers out of the mindset that they have to spend every dollar that they qualify for. Bigger is not always better, especially in today's market.

Michael Galicia
Century 21 American Homes
Oceanside, NY
By B Campbelljones,  Thu Apr 5 2012, 11:24
We plan to move to Florida or NC as our last retirement stop. We want to be in a good area (city) What are 2 or 3 places to consider in those two states. We dont want to live in a 55+ community.
By Nick Vandekar,  Thu Apr 5 2012, 11:32
Good post, I am finding more and more buyers unwilling to commit to buying all they can, but more what they want to pay. Many young couples base the decision on buying on just one salary not their combined salaries. Do they get less, yes, but they have peace of mind and no worry about affording or needing to change their lifestyle to own the home. Being house poor is no fun.
By Mira Hornbeak,  Thu Apr 5 2012, 11:34
Excellent as always Tara!
By Ernie Lester,  Thu Apr 5 2012, 12:16
No doubt the pendulum has swung towards a more fiscally conservative homebuyer attitude. The greed factor is gone. Budget focus is in. Recognizing this, we developed Transaction Intelligence®, a web app that simply takes a prospective homebuyer’s own stated constraints (as to total initial cash and total monthly payment) and structures a purchase transaction that results precisely in the stated constraints. It also deals with the “financially correct” choice of interest rates, given how long the buyer plans to own the home. Plus something every buyer should consider before buying down the rate; that is, the consequence of your choice if you sell sooner than expected. We’re not on the market with it just yet, but real estate pros are welcome to have a look, test drive the Beta and comment. http://www.mortgenius.com
By Obaid Nejati,  Thu Apr 5 2012, 13:00
What is the address of the large house in the image of this email and its specs?
Your reply will be much appreciated.
By Spirit Messingham,  Thu Apr 5 2012, 13:07
Good to know for first time home buyers, a conversation I always encourage they have with their lenders. Thanks
By Fantamas,  Thu Apr 5 2012, 13:12
Buyers need a calculator which ask for entering all expenses that possible for human monthly spendings.
I also was cought into situation that lender told me a maximum loan amount based on my income before tax.
That's why there should be the right "home buying" caclulator given to home buyers.
By Carole Myre,  Thu Apr 5 2012, 13:38
As a home-owner, not just a Realtor, I want my clients to write down how old they want to be when their house is paid-off, and to consider what that $2,000 a month mortgage will feel like when they are 60 years old, or if there was a job loss, death or divorce. Another thing to consider is using that home as an assett, and building equity in it that they can use when they do want to sell and buy something that suits them more as their needs change. As have most investments, Real Estate has taken a hit, but it does seem to be comming back, and that is one investment that has more value than a letter comming across your desk every month, or an e-mail. At least you can live in it, or rent it out and move to somewhere less expensive if you need or want to!
By Bill Williams,  Thu Apr 5 2012, 14:06
$100,000 sf 1200 minum 2 br patio home desired have pre qualified with chase bank
need to purchase within two months

bill williams----------naccatex@sbcglobal.net
By Birdwatcher,  Thu Apr 5 2012, 15:08
I think the main thing is not to get carried away. Don't simply fall in love with a house that you really can;t afford, but buy anyway. Be very price conscious and make sure the pricing is well in the ballpark for the area. In this buyer's market, it is a very good time to bargain on price.
By Thrilled,  Thu Apr 5 2012, 16:17
the bottom line is buy small if it's your 1st home.Less money the better.Get a 15 year loan pay it off in 7 years,make double payments.After it's paid off,start looking for A little larger home ,do the same thing again.But use this home as A down payment and cash.Before ya know it you'll be in the home ya want and it'll be paid for.
By Jena Beaver,  Thu Apr 5 2012, 17:04
Bcampbelljones, you should post your question on Trulia Voices for a local expert to answer, it's a great forum for that. Great advice here, Tara. I agree with Michael Galicia: just because you qualify for X doesn't mean you have to SPEND X. Buy only what you really need--being house poor is no way to live!
By Belliardaraki,  Thu Apr 5 2012, 17:11
Buy what you can afford!
By Connect With Beaumont,  Thu Apr 5 2012, 19:02
Just paid almost 1/2 million for 2 lots in an exclusive gated community. The house I plan to build is over 8200 sq. ft. and all on a single level. I scrimped and saved over the course of the last 3 years. I am so thankful I will not need a loan/mortgage officer. Once construction is complete, home will be all mine. Just absolutely grateful.
By Tonya Brobeck,  Thu Apr 5 2012, 22:59
What a loan officer tells a buyer they can purchase and what an underwriter will actually approve a buyer for can be 2 very different realities. An underwriter does analyze the borrowers cost of living, including food, gas, utilities, housing, all debts listed on their credit report, alimony, child support, insurance etc. Our automated underwriting systems now for all loan types are also very tight and won't even approve buyers with ratios much past 41-45% with all debts + housing included. A good loan officer/lender will do a budget with their borrower and work through the numbers to find a payment their borrower is comfortable with, then build a purchase price around the house payment the borrower approves of after they have underwriting approval as well. Therefore the Realtor also knows they have a fully qualified buyer.
By Tonya Brobeck,  Thu Apr 5 2012, 23:00
BTW, this is a great article, thank you for sharing!
By Linda Vintro,  Fri Apr 6 2012, 04:17
PLEASE if you trust your r.e.agent, then go with his or her recommendation for a mortgage officer. They know who will act ethically and do what is best for the buyer in terms of financing.
Buying a house is exciting but it's also a lot of work. You as a buyer need great Co workers in that task.

Linda Vintro
By ropelekath1,  Fri Apr 6 2012, 06:05
to Bcampbelljones. Please consider sarasota, Florida for your move. It is the "gem' on the west coast of Florida. There is plenty of house inventory available especially if you choose 10-15 minutes away from the beaches. Lakewood Ranch is a new community/town within the borders of the region. Lovely homes that range in all sizes. We have the #1 rated beaches in the country, here. We have many cultural outlets that include theater, opera, ballet and symphony, along with art and craft shows car shows boat shows and much more. Great shops, museums and wonderful restaurants. You will find a great home here, I can assure you, and I'm not a realtor. Good luck with your search!!
By Lyle Wolf,  Fri Apr 6 2012, 06:37
Very good post
By Jacci Queen,  Fri Apr 6 2012, 07:45
Bcampbelljones, I've lived all over NC for most of my 45 years and can tell you that Asheville would be my choice. It's beautiful all year long and doesn't get too hot. If you WANT hot, just move East. Wilson is a great little city. Stay away from Rocky Mount and Greenville. Concord would also be good but it's more of a large town (right outside Charlotte).
By Rob and Kerry Anderson,  Fri Apr 6 2012, 11:05
Good information. Thanks, Tara!
By Mom,  Fri Apr 6 2012, 14:51
What is the formula? If your gross annual income is $150,000, what price range of house should you be looking for?
By Osiris Carcamo,  Fri Apr 6 2012, 15:02
Great article Tara!
We did exactly what thrilled mentioned above...we bought a nice town house and paid it in 7 years! We saved a ton in interests! We have been debt free for almost 4 years and want to purchase a house in Las Vegas either to rent or to test the waters. We are a bit scared because we are not familiar with the area and its a bit far from where we live, L.A.
We need advice on how to manage a property being so far and what problems might arise. How to start, what are OK zip codes or cities/areas/rentables/crime. I have cked with Trulia for crimes, etc. It has helped a bit. What is the best route to purchase with, with a realtor, auctions, directly with banks? I also heard that having properties far away can become a hassle! Any feedback on the subject will be tremendously appreciated.
By Timothy M. Garrity,  Fri Apr 6 2012, 15:03
Great stuff, Tara! Thanks for always sharing your knowledge.

Timothy M. Garrity - REALTOR® | http://phillyurbanliving.com
By Carmen Brodeur- Top 1% Realtor,  Sat Apr 7 2012, 23:18
Great analysis. I like that you are telling everyone to be careful not to over extend themselves. No one has a crystal ball for what the future will hold.
By Lou Sanderson,  Sun Apr 8 2012, 18:30
One thing families don't think about when they buy a big house is that they can get lost. Families are so spread out that they stop communicating. Having a smaller home instead of a great big house can bring you closer to your kids and a better opportunity to keep a closer eye on what your children are doing. Since smaller homes are less expensive Mom and Dad are less stressed out just trying to make the mortgage and can spend more time involved with their children's activities. They are only young for such a short time it will mean so much to them that you are there when they really need you
By Sharon Paxson,  Tue Apr 17 2012, 22:38
Three great tips! Appreciate the post!
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