Consider buying less.
Remember, your mortgage lender's priorities do not necessarily match your financial wants and needs. "The general rule of thumb is that you don’t want your mortgage payment to exceed 30 percent of your gross income," says Badillo. "As a financial advisor, we are even more conservative and try to keep our clients spending somewhere in the 15-20 percent range of their gross income on their mortgage," he says.
That way, home ownership won't get in the way of major financial to-dos, like opening a 529 college savings account when you have a baby or funding your retirement account fully. While banks have tightened lending limits since the financial crisis, you can still get approved for mortgages just above the 30 percent gross income limit, says Badillo. "I strongly caution that clients do not go this route, because it puts a severe strain on their budgets and often forces them to reallocate resources that were going towards important goals such as retirement and taxable investments," he says.
Your quality of life counts too when considering how much home to purchase. Opt for a mortgage that eats up 30 percent—or more!—of your monthly income and you may find that you can't do things that make you happy, such as going out to dinner, taking big vacations, and reducing your hours at work to spend more time with your family.
Smart Tip: Take a look at your monthly budget to try to get a sense of where your money typically goes, and think carefully about any areas that may wind up getting scaled back. Then, consider again that wish list for your home, and frame it in terms of needs rather than desires and dreams.