One of the the things I’ve learned about personal finances is that there is a big difference between what you can do and what you should do. When my husband and I were shopping for a home, we were approved for more than twice what we ended up paying for our mortgage. According to the mortgage lender, our credit situation, and our income, qualified us for a home — and a loan — twice as big as what we ultimately settled on. We decided that even though a big home would be “nice,” it wouldn’t be as nice as living in a more modest home that was perfectly adequate for our needs.

Mortgage Trap: Buying More Home than You Need

When you are looking to buy a home, the 30% rule often comes up. However, it may not be the best decision to decide to buy a home that keeps with the 30% rule, even if you can “afford.” Even though the popular thinking is to buy the biggest home you can “afford,” it might not help you in the long run. You might actually be in a better financial situation if you evaluate your true needs, and then play to that.

In many cases, getting the biggest home possible can lead to other problems:

  • A financial setback can mean that you are pushed over the edge you are living on.
  • You might not have as much disposable income to do other things.
  • Maintenance costs and utility bills on a bigger home can quickly add up to more than you originally thought.

In the end, the expenses can get out of control. Look at your family situation, and your financial situation. Consider where you are likely to be in five to seven years. If the situation isn’t going to change much between now and then, getting a bigger house probably isn’t necessary. My family of three is comfortable in a home that some would think is “small.” But we have four bedrooms (one for my office and one for our frequent guests), storage space under the house, and a big yard. That’s all we need. There was no reason to get a bigger house, and now our mortgage payment is a fairly small slice of our monthly income.

While it can be tempting to get a bigger house, think again. You might find that a more modest home actually provides you with a little more freedom than you thought.