The Nest

Monday, May 07, 2007 12:42 PM

Spend all our savings?

Should we spend all our savings on the house of our dreams?

No way, it?s too risky. You can stretch your savings a bit, and promise to cut down on the extras like fancy dinners out and five-star vacations. But you should keep three to six months? income in the bank or in a mutual fund for emergencies. This is in case you lose your job or the roof gets a massive leak. You should also leave room in your savings for additional expenses that renters don?t have to deal with -- such as heating bills, property taxes, and homeowner?s insurance rates.

It?s important to price everything out beforehand, including these additional costs (your real estate agent should have some of them), so you get a realistic sense of what you?ll be spending each month. You will also need to factor in around three percent of the house's purchase price for closing costs, which have to be paid before you get the keys.

Once all of that is tallied, you?ll have a clearer sense of what you can realistically afford. It may not be this house of your dreams, but take notes on everything you love about it. When you eventually find something more in your price range, you may be able to incorporate some of those dream-home touches that wowed you about the first place.