If you’re like most Americans, I’m sure you’d love to win the $300 million Powerball lottery and buy a massive dream home. Unfortunately, that’s not likely to happen (please let me know if you do though) but I do hear a lot of people say, “The home I want is too expensive”. I guess the real question would be, “Is buying a more expensive home ever a good idea?”
For the purposes of this article, “expensive” doesn’t mean a one million dollar home. It’s a term relative to what price range you can reasonably afford. It’s a home that is at the top of your monthly budget vs one that’s at the bottom.
The flexibility of what price point you can afford comes down to how much cash you have to put down and how much money you want to keep at the end of each month for other things.
Some people choose to buy a home well below their means because they want to travel, drive nicer cars, or put more money into savings. They have their own reasons, but they will say, “A home is just a place to store your stuff.”
Others want a little nicer home because that’s where they spend most of their time, and they want their family to enjoy time together. They may even like to have larger parties or family gatherings, so a larger (more expensive) home fits their lifestyle and dreams.
There is no wrong or right answer. It’s simply what you personally are willing to spend for yourself and your family. In an effort to help you make that decision, here are some pros and cons I’ve heard from our clients.
PROS OF BUYING A MORE EXPENSIVE HOME
We’d be in a better neighborhood. Many buyers just want to get their kids into a better school or to live in a nicer neighborhood. The difference between a $250,000 neighborhood and a $300,000 neighborhood can be huge. A nicer neighborhood typically comes with nicer amenities too.
Once the kids leave home, we’ll downsize and have a bigger profit. It’s simple economics. If homes in the same area are rising at 4% every year, then buying a more expensive home will give you a bigger equity increase over time. Ex: a $200,000 home will rise to be worth $243,330 in just 5 years ($43,330 increase in equity), but a $250,000 home will rise to a value of $304,163 in that same 5 years ($54,163 increase in equity).
Get more space and more upgrades. Bigger, or more expensive homes typically have bigger bedrooms, kitchens, closets, more storage space, etc. Depending on the price point, they have granite counters, upgraded appliances, big walk-in pantries, etc.
CONS OF BUYING A MORE EXPENSIVE HOME
Bigger monthly payment. That’s pretty obvious, but hopefully you know the cost difference. Assuming you put 20% cash down, a conventional loan on a $250,000 home would be approximately $1,435 (P&I,+TI) but a $300,000 home will only be around $280 per month more at $1,715 (P&I,+TI). Speak with your lender to get the details for your situation.
More home to maintain. Bigger homes have more windows to replace, more carpet, more roof, etc when it comes to the cost of replacement and repairs. They also have bigger heating and cooling bills. Typically a larger home requires more furniture and takes more time to clean.
If something changes, we may have trouble. Some people worry about what they’ll do if they experience a job loss and now have this bigger home. It’s something to seriously consider. Should you get pre-approved for a home loan based on just one salary and not both husband and wife? Obviously you should have 3-6 months in savings just in case, but too many people don’t.
I hope you realize I’m trying to be objective here and not make a case for either side. We have clients at either end of the spectrum, and many in the middle. I will tell you from experience of helping hundreds of families, most people never wish they’d bought a cheaper home and they rarely regret spending a little more money to get the home they love.