What Can You Afford: House, Car or Vacation?

Summertime might be a good time to buy, but you have to know what you can afford.

Summertime might be a good time to buy, but you have to know what you can afford
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Summer can be a big season for splurges, including escapes to the beach, a new set of wheels or even a new home. If you're trying to decide which of these purchases you might be able to afford, consider this: They all come with hidden costs. We asked money experts to identify them, along with common mistakes consumers make when it comes to their buying decisions.

Here's your guide to deciding what you can afford – and what you can't:

Can I afford a house?

Factors to consider: Whether you're ready to make a sizable down payment (15 or 20 percent of the home's sale price), how long you plan to stay, and if you can handle additional expenses such as maintenance costs – as well as swings in the real estate market – all play a role in whether it's a good time to buy.

The hidden costs: "The purchase price of a home is only a wee part of the real cost of buying a home," says personal finance expert Carmen Wong Ulrich. Aside from closing costs, insurance and fees, buyers also take on the risk of the housing market. If the value of your home goes down, the value of your assets falls. That's why Ulrich says you should also consider the stability of your job, the neighborhood, schools and the overall state of the housing market in the area before taking the plunge.

[Read: 20 Hot Money Moves for Summer.]

Elisabeth Leamy, Good Morning America's consumer correspondent and author of "Save Big: Cut Your Top 5 Costs and Save Thousands," recommends that renters only buy a house if the mortgage payment will be similar to their rent payment. That way, she says, "If you can afford your rent payments, you will be able to afford your house payments. It's that simple."

For some people, though, even that amount can be too high, says "Psych Yourself Rich" author Farnoosh Torabi. "You need to remember that owning a home involves some extra expenses, namely taxes, common charges and upkeep. If a pipe breaks loose, there's no super or landlord to cover the cost. It's all coming out of your pocket."

Common mistakes:

1. Moving within a few years. Buying a house generates a lot of transaction costs; financial expert Manisha Thakor estimates they can add up to around 10 percent of the total purchase price. That means you want to live in the house long enough for price appreciation to offset those costs, she says. One rule of thumb is to plan on settling in for at least five years.

2. Borrowing the maximum amount allowed by the bank. It's tempting to take banks up on their pre-approval offers, but the problem is that they don't always factor in your future income changes. If you start a family and one spouse stays home, for example, your household income could easily be cut in half. "You want to factor that in before you buy," Thakor says.

3. Forgetting to look beyond the numbers. "You might be able to financially afford to buy a home, but is it worth it to you? If you enjoy a transient lifestyle, then it might not be," Torabi says.

Laura Vanderkam, author of "168 Hours: You Have More Time Than You Think," adds that the less you spend on your house, the more you'll have for other enjoyable activities, such as trips, dinners out and entertainment. "Those things might actually make you happier than a more expensive house," she says.

[Read: New Personal Finance Tools You Should Use.]

Can I afford a car?

Factors to consider: Your lifestyle, maintenance costs and personal preferences all play a role in deciding whether it makes sense to buy a car.

The hidden costs: Depreciation means that the moment you drive your new purchase off the lot, its value plummets. That's why Ulrich asks why anyone would bother purchasing a new car. "Imagine what else you could do with those thousands of dollars," she says. Instead, she recommends buying certified pre-owned vehicles.

Anyone taking out a car loan needs to consider the interest payments and the length of the term, says John Sternal, vice president of LeaseTrader.com. Before deciding whether to lease a car or buy one, he recommends asking yourself how long you want to drive the car and how often, since people who prefer to drive new cars for relatively short periods of time often save by leasing instead of buying.