The Real Estate Trap — Some of the major popular reasons for buying a home are derived to give real estate agents and bankers the most bang for their buck, not yours.
Buy up. More square footage is always better. You shouldn’t down-size. Your payment will stay the same, but your wages will increase over time. The bigger the house, the bigger the tax break. It’s only another $30 dollars a month.
If you’ve been in the real estate market, past or present, you’ve heard most (or all) of the previous statements. But do they really make sense when considering a home purchase? Maybe not. Each person in the buying market must decide what is truly important.
Status is a big one – more than most people would admit to. Using your home as an equity vehicle for retirement is another. The security of putting a nail in the wall without asking the landlord first can motivate those who crave independence.
Through it, all, let’s not let the hype and sales techniques sway our reasoning.
Takeaways
- You don’t have to buy to the maximum allowed by the bank.
- You don’t have to buy up.
- There is no guarantee that your house will continue to rise in value.
Why? You don’t have to. If the square footage and mortgage payments are something you are comfortable with, then make a lateral move if you have to make a move at all. I know that jobs and neighborhoods change over time, but that doesn’t mean that you are obligated to buy up when you do move. It’s your decision.
Weigh the financial benefits, how much money you want leaving at the end of the month, your job status (or future status), family status (kids, etc.), then do what is right for you, not what your real estate agent or banker tell you.
Not necessarily. Is it finished footage or unfinished? If unfinished, do you have plans to make it a family room, bedroom, office? Can you do the work, or will you have to take out a second mortgage to cover the cost?
Remember also that more square footage means more house to clean, more heating and cooling costs, and usually a larger lot with more water, more grass cutting and more weeds. There is more siding to repaint every few years. Taxes are more. So is insurance.
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Say’s who? If your job status has changed, or one of you decides to quit work and go back to school or stay home with the kids, you will need the extra monthly cash in your pocket for necessities. In some cases you might have some capital gains tax to deal with, so consult a tax attorney. Unless you are more than half of the way through your 30-year plan, that would be a rare occurrence.
Maybe . . . maybe not. You don’t know for certain that your job is secure these days. You may be laid off, or your hours may be cut to below insurance benefit levels. Your spouse might lose his/her job. What it one of you becomes ill and there are catastrophic medical bills to pay? I’m not trying to tout gloom and doom for our futures, but these things do happen. No job is secure . . . ever.
Did You Know?
A thirty year mortgage can be reduced by almost nine years by doubling your first payment.
Yes, that’s true. And it allows more dollars to come home in your paycheck. However, it’s not as cut and dried as all that. A bigger house means a larger mortgage (in most cases) and more state and local real estate taxes.
On top of that, the vast majority of the paycheck extra goes toward paying interest on the larger loan for your new and larger house. (Support your local bank.) And considering that most homeowners only hold their houses for five to eight years before moving again, chances are that moving expenses and closing costs will eat up a sizable portion of appreciation value in your local housing market . . . that is unless your market has made an adjustment and your property has actually lost paper value. (Too bad. You still have to pay that mortgage at the original valuation price).
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True, adding a small amount to a monthly payment is not bad on its own. However, that totals $360 a year (gas for the car, a car payment or two, a nice dinner out a few times a year, Christmas or birthday gifts, etc.). And what about the true costs? An increase of only $30 a month over 30 years is the net result of a lot of interest paid for the real dollar amount of the increase. Is it truly worth it? If so, try to make to extra principle payments early on in your mortgage to offset some of the extras you fold into your contract.
Don’t be swayed by anyone else. Set your personal limits for payments (including taxes, closing costs, insurance, lawn and home maintenance costs, utilities, etc.), then stick to your guns. After all, the larger your new house, the more real dollars the real estate agent earns. And don’t forget the banks. The larger your loan, the more they make. They will always encourage you to buy up to your financial limits. (More profits for them). Don’t let their priorities determine your fate.
