You found a house!
It’s newer, nicer, bigger. It sits on a hill…at the end of a quiet street…in a great neighborhood.
You haven’t gone so far as to measure for drapes. But you have imagined yourself relaxing on the back porch, enjoying a chilled beverage while watching a summer sunset.
Given today’s interest rates, your note would be a good bit higher. “But,” you keep telling your spouse, “We can refinance when rates come back down.”
You are itching to upgrade. However, you DON’T want to make a decision you’ll regret later.
So, here are four questions to ask:
- How much is this (REALLY) going to cost?
It’s easy to determine what a house payment will be. It will—at first—consist of a little principal and a whopping amount of interest.
But a larger home also means a heftier homeowner’s insurance premium and a higher property tax bill. Whether you pay these outright, or as a part of your mortgage payment, don’t forget to add in these higher costs.
And that’s only the beginning. A roomier house usually calls for more furniture. Perhaps a bit of remodeling and some new appliances are needed too? That bigger lawn means your walk-behind mower won’t cut it anymore (pun intended). You’ll be in the market for one of those zero turn “lawn thrones” that screams, “I am the KING of the crabgrass!”
My point is that a new house note is only the beginning. Make a thorough list of everything you can imagine you’ll want to do in and to the house. Put a price tag next to each item. How much of that can you afford? (You may find you need to put a date by each item and turn that into a prioritized wish list.)
- How else will the increased costs affect me?
Once you have an accurate price tag on the bigger, newer house—and all the ancillary costs that will come with it, ask yourself: Where will we get the money to pay for this lifestyle upgrade?
Barring a pay raise, a second job, or an unexpected windfall, you will have to cut your expenses. That may mean less dining out, no more impulsive purchases, fewer weekend getaways. You either have to cut back or I see major consumer debt in your future.
- What are the non-financial pros and cons?
These are the things driving your desire to upgrade. On the “pro” side…this is the house of your dreams! You’ll be able to entertain, enjoy time with your family by the pool, and spend your days in the environment you desire. Those are all good things.
On the “con” side, if you’re a little bit “house poor”…and you have less money to do other things—eating out, going on vacations—will you be okay with that? What if maintaining this house (i.e., mowing, cleaning, fixing up) demands more of your attention, free time, and energy than you are willing to give? If so, it’s not a good thing.
- How will my life, my family, and my financial security be affected ten years from now?
Moving into a new house will be one of the major milestones you and your family look back upon ten or twenty years from now. It will mark you.
If you can afford the financial costs, and you desire the lifestyle change, it ought to mark you in a good way. A decade from now, you should look back and say with satisfaction, “I’m SO glad we did that!”
However, if the new house produces one financially and emotionally draining surprise after another, you could end up years from now sighing, “That was one of the worst mistakes of our lives.”
Should you buy that new home?
The only way to know is to count the costs…all of them.
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