Buying a home, or upgrading your rental price point is an exciting and rewarding endeavor. All the time we spend watching HGTV, or scrolling through Pinterest/Houzz certainly will lead us to many dreams of an affordable perfection, and to always be hungry for MORE space. However, if living in a bigger home than you truly need becomes a burden, these positive feelings will dissipate quickly.
As you contemplate making a move in 2018, consider these five things when determining how much home you really need:
#1: Less space, less mess, less stress
With this first point, I could write the newest version of the "If You Give a Mouse a Cookie" series. If I give you a nice big new home, chances are you will be spending more time and money cleaning, heating/cooling, furnishing, decorating, and/or landscaping. If you have this influx of expenses, you will spend more time balancing your budget and fretting over how this amazing house has poked a massive hole in your wallet. Can you see where I am going with this? Beyond that, with every extra square foot of home, comes an added degree of maintenance, repairs, and home improvements, especially when owning! Your home is your happy place. Living in stress - literally IN stress - is unhealthy and being 'cost burden' can be dangerous.
#2: Interest is a killer
Building equity by owning instead of renting is a smart investment, but at what cost? Have you considered the full cost of a loan depending on how long you live in a house? Have you calculated the difference between buying a home with a 15 year mortgage vs. a 30 year mortgage? Have you asked a lender how much you could save on interest if you spent one more year saving for a bigger down payment?
Consider the difference between buying a $400,000 house and a $800,000 house in Essex County, for example, over time at the same interest rate, with 10% down:
|30 Year Fixed - 4.0%||15 Year Fixed - 4.0%|
Total Loan Cost:
Doubling the home purchase price also doubles the total amount you’d pay on your home, including all of the interest (bold). Another reason you should consider buying a home for a lot less than you can afford is the ability to do a shorter-term mortgage. As you can also see above (orange), while a 15-year mortgage means a higher monthly payment, it also means being obligated to pay more than half of the interest of a 30 year mortgage.
Finally, it is also important to remember that - no matter how friendly and supportive - mortgage lenders and the institutions they serve are in the business to make money. The bigger the loan, the more money the bank/institution makes off of interest, and sometimes, the higher the fees charged to you. Just because they find you a mortgage product with a good rate and a favorable price limit, doesn't mean you need to use it all. Always make sure to crunch the numbers, stress test your budget, and consider ALL options.
Link: Crunch the numbers here
# 3 - Being prepared for the unexpected
If you decide to buy a house that puts a strain on your financial life without much room for error, this can be a dangerous move. What happens in the event of a job transition, a cut in pay or a medical emergency? Planning on having kids? What if twins, or triplets come? Hopefully you’ll have savings, disability and life insurance for any of these kinds of unexpected situations, but in the event that the inevitable happens, will you have what you need to continue to make monthly mortgage payments?
This is why it’s better to have margin in your monthly spending and to choose a house below your means. Beyond these life specific events, in the next 5-10 years, the housing market will have to stabilize and home values will drop. It is important to be ready and aware of how to insulate yourself from becoming "underwater" on your home.
# 4 - Maintaining mobility
The lower the price of your home, the more people can afford it, the better position you are in if you need to move. With renting, if you are in an affordable unit, in a high demand market, and give your landlord plenty of notice, it could be possible to get out of your lease early. With owning and selling, you would be surprised how many thousands of people are looking at your affordable neighborhood everyday minute on Zillow/Realtor/Trulia etc. Similar to #3, you never know when a move will be prompted for a new job, or other opportunity. Having the freedom of mobility is an enormous weight off your shoulders.
# 5 - Getting out of the house
This is the #1 reason why I make sure to keep my housing expenses manageable. I love to travel, I love to see live music and sports, I love to indulge in good food! You should be able to do all of that too!! You need to always be able to enjoy life away from your home.
Buying a home, or renting a newer and bigger apartment, is a big deal. Making a poor choice or not having all off the facts can set you up for heartache later on. A good realtor will understand your likes and dislikes, and show you properties that align with your preferences. A GREAT realtor, and in particular a Buyer's Specialist of a Team, will educate and guide you to make decisions that will keep you more happy in the long run.
As your realtor, I will ALWAYS have your best interest in mind when searching for the perfect next property and our team will show you unmatched service in the process!