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While realtors will tell you yes because its a better investment as the house appreciates over the years you will have a better asset with a more expensive house. Realtors also make their money from commissions (the money expensive the house the bigger the commission). You may be able to afford a $300,000 house and pay around $2,700 a month. but what if? What if you lose your job? What if life changes? What if an emergency happens? Do you still want to be paying $2,700 a month? Even if you can afford a more expensive house doesn’t mean you need to spend that much. Shop around the area you like. Maybe live a town over, or give up an extra bathroom. Imagine paying $1,000 a month instead of $2,700, now you can afford to vacation, live with less stress, or even afford fixing up the lower costing house. Being house poor may impress the Jones but offers little in the way of piece of mind.

To determine your needs you need to be honest with your living situation. A young couple looking to start a family is in a much different situation compared to a couple of empty nesters. Ask yourself can I live in this house today? Can I grow into this house? Do I need a basement? An attic? A third bathroom? Make a list of things your new house needs to have for you to live in it. Then make a list of the features in your dream house. Now when you go shopping eliminate all houses that meet your needs list. Then narrow it down by price and wants list. Remember this is a long term investment that you can add to or renovate over the years to fit changing living situations.