We can try to justify taking on a huge mortgage by doing detailed projections of house price increases and accounting for various housing costs, but this isn’t the path to a useful answer. It’s unexpected factors that drive this decision.
One factor that many don’t properly take into account is repair costs. We all know the furnace, roof, and other expensive items will need replacing, but we usually can’t predict when. This makes it easy to ignore such infrequent large costs in a budget. Some inexperienced homeowners may even forget about predictable costs like property taxes, house insurance, and condo fees.
Another category of unexpected factors is reduced income. If you buy a house with a spouse right up to your joint affordability limit, any reduction in income can be devastating. We’ve all been told that we could lose our jobs, but in my experience, most people don’t think this will happen to them, even though it’s common. You may believe you could lose your job, but that you’d find another one easily enough. It’s very common for people losing their jobs to end up with a lower-paying job. Getting forced into permanently lower pay can happen to anyone, but is common for those over 50.
Health problems are another common reason your family income can drop. You may not be able to work at all or have to get a lower-paying job. Health issues are a common reason why some people are forced to retire before they want to.
Another factor younger people tend not to think about is that you may want to do something new later in life. If we could stop people on their commute to work and get them to answer honestly how they feel about their jobs, an alarming number of them would say they dread going to work and feel desperate and hopeless. They are trapped in their jobs by debt. They yearn to do something else, but that something else likely pays less money, at least for the first few years.
We can push all these worries aside by just leaving a healthy gap between the size of mortgage you take on and the size of mortgage a lender will let you have. Don’t give up future flexibility for an expensive house.