mortgage

2 reasons to skip homebuyer credit

The decision to purchase a larger house needs to depend not on the appeal of bigger closet space, but on your personal cash flow, Casserly says.

"Can you handle an increase in payment above your current cash flow -- regardless of the $6,500 credit opportunity?" Casserly asks.

She says that if moving to a bigger house will risk your children's college fund or your own retirement, or deplete your emergency cash reserves, you simply can't afford it.

Job and income instability

Even if the stars are aligned for a leap to a larger home, remember that in the end, it all comes back to numbers. For too many people in today's tough economy, the math just doesn't add up.

"The wise homeowner will look at both income and job stability before deciding to move up," Warren says. "In our current economy, no one should stretch themselves too thin. That was a common mistake in the boom years, and I think we've all learned from that."

The biggest consideration should be the impact trading up will have on your cash resources and current lifestyle.

"Too many people ignore the resulting loss of short-term savings or make concessions about lifestyle they are unprepared to follow through on after the purchase," says Ethan Ewing, president of Bills.com, an online personal finance portal based in San Francisco.

"If, after these calculations, a family is losing their six-month cash cushion or essentially becoming 'house poor,' they need to reconsider or evaluate alternatives."

There are some "good reasons" to trade up to another house right now, Knuckey says. These include having a very large family (or extended family living with you), a desire for a safer neighborhood or the need to find a better school district for your children.

However, "these reasons don't include wanting a formal dining room or an extra guest room that you only use a few times a year," Knuckey says.

Remember, there's nothing wrong with staying in the same house all your life, Knuckey says.

"People who are wealthy -- who you don't think are wealthy -- are doing that," says Knuckey. "You can save a tremendous amount just by staying put and occasionally upgrading some things in your house as you need it."

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