Marketplace has a new podcast for kids, "Million Bazillion!" EPISODE OUT NOW
Ask Money

A Bigger Mortgage?

Chris Farrell Jul 1, 2008

Question: Hi Chris! (please withhold my name if you use – thanks!)… I am 36 years old and about to marry for the first time (my fiancé is also 36). He owns a teeny home which he purchased 4 years ago (a duplex) that he will sell and we would use the equity to purchase a larger home since we feel we’ll soon outgrow his place if we have a child, and it’s actually quite tiny for even the two of us. I am strugging with whether or not we should buy. The mortgage payment (with taxes, etc) on the house that we are interested in purchasing would be about 30% of our combined gross incomes. I have heard that 25-30% is what you shoot for. Everyone tells us to “stretch” and buy more house that we think we can afford, assuming that our income will increase over time. Here’s the catch — I am self-employed, and so if I have a child and stay home for even just 6-8 weeks, I will lose money as I don’t have any “paid time off.” Plus, being self-employed, my salary can potentially vary (though it hasn ‘t over the last 2 years that I have been doing this full-time). Is it a mistake to take this on when we know that my income will decrease? My fiancé will probably get annual raises of 5-6%…. Thanks so much! Alexandria, V.

Answer: Don’t do it. DON’T DO IT. Among the worst pieces of conventional financial wisdom is to “stretch” to buy a bigger home. It’s a recipe for money trouble.

You have a lot going on in your life. Getting married. Starting a family. You’re self-employed. What if your husband-to-be doesn’t get 5% to 6% raises, but only 2% to 3% during a recession–or even no raise? Why add mortgage stress into the mix?

What’s more, when you buy a bigger house you take on more than a larger mortgage. Property taxes, heating bills, air conditioning, and all the other costs that go into running and maintaining a home are higher. I’d rather that you put more money into savings–from cash to stocks and bonds–rather than into bigger mortgage payments.

No, I would stay financially conservative so that you can focus on married life and your work. If your incomes go up, you and your husband can always move to a bigger home. But by then you’ll have built up the strong foundation of a healthy balance sheet.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.