Buying less house is a radically different idea in this age of “bigger is better.” Although the Mac-Mansion hasn’t lost its appeal, there’s a lot to be said for going a little smaller or a little cheaper than you have to.
For starters, the reality is the more money you spend on your property, the more money everyone makes. And this is true for every facet of your home purchase.
The National Association of Realtors will tell you that property agents get paid by taking a percentage of the purchase price of your home. The more you spend, the more your agent makes on the deal.
This may explain why your real estate professional tends to disregard your emphatic statement that you only want to pay X dollars for your new home. Even dedicated pros will profit when your budget creeps up a little.
Naturally, a bigger house usually means a bigger mortgage. And, when it comes to financing, bigger loans equate to higher closing costs, borrowing fees are greater and all those extras are paid to your lender.
When you’re shopping for a home, especially a first home, don’t go out of your comfort zone.
There are valid reasons to not borrow to the maximum. Let’s examine all the ways bigger doesn’t necessarily mean better.
Until the crisis of 2007-08, most people believed housing prices would always rise but market corrections are, to some degree, inevitable. And then there’s the question, “what if you need to move?” It is conceivable, although unlikely, that the property can drop in value.
None of this matters if you have no intention of ever selling your property, but it’s unrealistic to expect that the home you buy today will suit you ten, or even twenty years on down the road. According to the National Association of Home Builders, the average family only stays in their home for about 12 years.
Unavoidably, a bigger or more expensive home is going to incur more costs.
- The extra space in a larger home is going to cost more to heat and cool and that means higher utility bills.
- The more attractive, expensive homes almost always attract higher property taxes.
- Home insurance on a bigger house is going to be pricier.
- The larger the home, the larger the repair – take roofing for example.
- Flooring is priced by the square foot. Bigger means more tile or carpet.
- More windows, more cost when upgrading or replacing.
- A bigger yard means more landscaping and fencing.
This is by no means a comprehensive list, just a few of the potential outlays to be aware of.
Have a buffer zone
Life happens and nothing about it is guaranteed. It’s a sad reality that people lose their jobs, divorces take place, accidents occur and your monthly income can be badly affected as a result.
If the unthinkable were to happen to your family, will you still be able to meet you obligations? Buying less house will give you and your finances a buffer zone if some hardship befalls you. With breathing room in your monthly budget, you will be more prepared to take adversity in your stride.
How smaller can be better
Less house almost always equates to a healthier financial life. After all, what good is having a big house but a small bank account?
- Having the money to help your kids through college.
- Having enough money for a nice family vacation each year.
- With a smaller home, you avoid being house-poor and unable to afford much of anything.
- Buying an affordable house allows you to put money away for a secure future.
Buying a house on the lower end of your housing budget, can mean being able to afford the monthly payment on a loan with a shorter term. And then remember, the less you borrow, the less you have to pay back. The higher your mortgage is, the less of an investment you have, because you are signing away your life. Buy a house, not a mortgage.