Buying a House: Right Size vs. Right Budget
You’ve been around the block a few times, enough that you’re finally getting this adulting thing under control, and what do you know? Something’s missing. Or it’s not, you just know that you’re ready to start looking into a new venture, and what’s better than buying a house? That really screams “adult.”
Besides, prices for rent just keep going up, and while there’s something kind of nice and freeing about that sense of “if I want to, I can just ditch this apartment and move abroad on a moment’s notice,” there’s also something attractive about knowing that a landlord can’t just raise your rent on a whim or kick you out because you adopted a cat and didn’t tell them. We’ve all been there!
Here It Comes, the Next Phase
After you’ve spoken to a Loan Officer and possibly located a real estate agent that really gets you, you might have been told a loan amount that you qualify for. You’ve done some calculator wizardry and kind of feel like that amount they’ve told you that you qualify for is a lot more than you were expecting, or feel comfortable about borrowing.
First off, well done. Second, now it’s up to you to make the decision about what will be the wisest bet for you. We’ve crafted a list of factors that you’ll want to consider before you make any major decisions. Check them out and choose what your priorities are as you decide what kind of home to purchase.
Important Transition Step
Do you select the house you’ll buy based on size, or do you search and choose based on budget? When there’s a large discrepancy between those two elements, you must narrow it down. Think of it like a Venn diagram and see if you can hit the sweet spot right in the middle where the most important concepts overlap.
House size is a major factor, as is cost, and many people ultimately decide that they’d rather have a lower house payment and less space, versus having more space with room to grow into.
But a closer look at both might help you choose.
Less House vs. More House
There are times when getting a bigger house might be the driving factor in how you make your decision. Maybe you’ve gotten married, done it for a few years, and you’re now ready to start making a family and building that dream.
Having space to fit those family upgrades into is a nice feature. After all, you’ll need a room for the baby, and then possibly one more baby (eventually, we don’t want to rush you). Even if you don’t plan to begin adding children to your life any time soon, having room for other things such as having friends over, putting up guests, or working from home make the additional space a great feature.
One issue to keep in mind is that it may be easier to utilize more space than you currently need at the moment than adding space later because you made the choice to get less house this time around. Adding to a house is often not cheap. Selling a house and buying more house later can also be complicated and frustrating, not to mention, housing often trends higher year upon year, rather than lower (though there are market corrections).
With the Pros, Come the Cons
However, remember that a bigger home not only costs more on the bottom line now, quite a number of elements will also end up costing more. Springing for things like carpet and flooring to cover the square footage adds money if this is new construction.
Bigger houses also tend to have more windows, which will cost more to replace if that day ever comes. Likewise, if you’ll ever need to redo the roof—larger house often equals a larger roof. Heating and other utilities increase as the square footage goes up. Even concrete for the larger footprint will end up costing more.
Staying on a Lower Budget or Maxing Your Loan Amount
Going all the way to eleven, so to speak, on the amount you’re given on your loan approval can mean the difference between having disposable income for things like vacations and saving for your kids’ college, and saving for retirement—as well as other future-thinking ideas—and not having very much money to spare from month to month.
Would you be a month’s-worth of bills away from financial disaster if you squeak by just under the maximum loan amount? Deciding now what your priorities are in terms of money and house will help you not regret how you did it in five months or a year or three years.
Mortgage lenders don’t know how you spend and save your money month-to-month. They additionally don’t know what your dreams are or how well you manage your money day to day. So it’s ultimately your responsibility to pay attention to those factors and make the responsible decision that’s right for you.
Here’s the thing: knowing what’s right for you will mean taking a hard look at what’s really important for you and your partner, if you’re making the decision with another person. Sometimes spending less on your house means having more to go on multiple vacations a year or having more money to put into savings and retirement.
Going smaller on the house may mean more headaches as your family grows or the kids get bigger, or the in-laws decide they want to move in with you because they want to save money (in a weird plot twist no one saw coming!).
In the end, you’ll be happy that you knew what you were about, what mattered to you most, and that you stuck to your plan. So, decide on those things and hold the line.
I'm a first-time homebuyer.
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