You Can Afford A Bigger House, But Should You Buy One?

I’ve seen a lot of articles in the news about how higher priced homes are a great bargain.  This article in Yahoo Finance discusses this trend and points out how higher end homes have fallen in price-per-square-foot more than any other segment of the market during the crash.

A good friend is beginning to think about getting in the housing market, and are considering higher priced property.  The properties that they are looking would have been unaffordable even a couple of years ago, but have now fallen to where they are considering a move to a higher priced property.

They have their finances in order so I’m confident that they would be able to afford the down payment and monthly payments, but it’s still worth considering that even though you can afford a higher priced property, should you?

Here are a few things that I think come to mind that should be considered when you look at the type of property you might buy:

  • Down payment and monthly payment – Make sure that you can afford both the down payment and monthly payment
  • Taxes – Even if your dream home is way lower in price, chances are the taxes to support that house may not have dropped.  Make sure to factor the tax payments in your budget
  • Cash flow – Even if you can afford your dream home, make sure it’s not going to put you in a cash poor position.  There is good, free budgeting software available that can help you make sure things are on track, especially when that time comes to e-file your tax returns.  If you find yourself funneling every dollar into the payments, you might not end up enjoying your dream home as much as you anticipated.
  • Flexibility – Make sure that your payments leave flexibility both for things in your control and out of your control.  If you’d be in trouble if you or your spouse lost your job, you might want to re-consider.  If you might consider going to a single-income household, make sure you’re prepared for this up front.
  • Utilities – A bigger house is going to use more energy.  There are more cubic yards to heat, more lights to keep on, perhaps more yard to water and keep up.
  • Upkeep – Any house is going to require upkeep.  Things will wear down or break.  When it comes time to put on that new roof and replace that carpeting, realize that those things (and many others) will cost a lot more than a more modest house.
  • Opportunity cost – Any extra dollar you spend on your home is money that you can’t use elsewhere.  Make sure you understand and are prepared for that.  You might be standing on the sidelines while people you know are investing in something paying a big return, unable to do so because you don’t have the cash.

Each person and situation is different.  I’m not saying that taking advantage of the real estate market to buy a nice home is right or wrong.  That decision varies with each person and there’s a lot of gray area.  All I’m recommending is to think about things other than price when making your decision.

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3 thoughts on “You Can Afford A Bigger House, But Should You Buy One?

  1. I am totally against buying a big house, just because you can. Of course, there a lot of great deals out there, but who knows what is going to happen to market. I have decided that your home cannot be viewed as an investment, but more a place to live and enjoy.

    I have a modest home, 2700 square feet and have 3 kids. We never use our dining room or living room, it about 350 feet of wasted space. I cannot imagine living in a 4000 square foot house that many people are moving into because they have become more affordable.

  2. One idea to consider – if you had to move (or lost your job, got a divorce, etc.) and could not sell this home, are the PITI payments low enough that you could rent it out with a positive cash flow?

    Life happens and it's always a good idea to play out different scenario's when you are making such a large purchase.

  3. i live in a small house 1100 sq ft. 2 kids 3 bdroom 1 bath. Well the one bath stinks but the tiny mortgage is worth the trouble. Everyone wants a bigger house. Sorry not happening, you can keep your 2000+ sq ft houses they will be 18 yrs old b4 you know it. 8 more payments and its all mine and i'm only 32 yrs old.

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