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CONTACT US |
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FREE Recorded Info On Homes
You Can Buy With Zero Down Payment...Call 24hrs Toll Free
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Town & Country Realty
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2300 Biehn Street |
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Klamath Falls, OR 97601
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Toll Free 1-866-883-3421
ext. # |
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info@t-crealty.com |
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How much do you really need to
buy?
Written
By Hugh Chou, Calculator Wizard
Even though a Realtor or lender
might think you can afford to buy a certain house, you must always consider the
ramifications and decide what you really can and want to afford yourself.
Buying More is not always Better
Here in the United States the bottom
line is usually "the more, the better". Buy as much as you can for
yourself; you deserve it. But in many cases you may really want to buy less, or
at least not push your finances so much that you really have to strain to afford
that house some Web based calculator says you can afford.
Let's say you have an income of
$40,000 and my web calculator says you can afford a $120,000 house. What that
really means is a lender will give you a loan large enough so that you can
purchase that $120,000 house. If you are someone who regularly barely keeps your
checking account above the minimum you really will not be able to afford the
house. The only way you may be able to keep up with the payments is to throw
more and more on your credit cards. And then you will curse me and my silly
calculator.
It definitely depends on the
housing market in your area. In some places a $200,000 house is a luxury home,
in other places that is barely a starter home. People who live in the more
affordable areas have the most options. They are the ones who must decide not
only "how much can I afford?" but "do I really need all that I
can afford?".
Bigger Houses cost More
Another factor people often forget is
that the bigger a house you have, the more it costs to own it. If you move from
a 900 square foot apartment to a 2500 square foot house, you are going to have a
whole ton of floor space you are going to want to fill with furniture. You have
a lot more space to heat and cool, lots more to clean (or you hire out the
cleaning as an additional expense.) Then there is the yard and maintenance
issues you never had to deal with in a rental unit. Don't think that the monthly
payment is the vast majority of your house costs, there are plenty more costs to
worry about. By buying a home that is 20% smaller than the one you can afford
from the lenders' points of view, you can also save on utilities, furnishings,
maintenance, property tax and insurance. Everything is relative.
The Neighborhood Factor
Then there is the neighborhood issues.
If you live in an expensive house in an "exclusive" area, the costs
definitely do not end with your house payments. For example, if you live in a
more expensive area, the homeowners there will also tend to drive fancier cars,
are more apt to join private organizations and send their children to private
schools. After living there a while you learn to accept that this is the norm
and that becomes the typical standard of living in your (and your family's)
eyes.
Much of this is discussed in the
book The Millionaire Next Door by Stanley and Danko. People who live in
expensive neighborhoods are not necessarily the ones who own the most assets,
just the ones who spend the most money. Their environments give them a model of
how much money should be spent. That's just natural due to day to day exposure.
And every persons actions affect others in a specific environment. If just one
neighbor buys a new Mercedes that is no big deal. But then if after looking at
it a while his neighbor decides maybe he needs a new car, so he gets a Lexus.
Then another neighbor thinks "well, if they can afford new cars, I don't
see why I can't", so she goes out and gets herself a BMW. Soon people who
drive home in that neighborhood in a 2 year old Taurus will think there is
something wrong with themselves. However several blocks away in a less affluent
area that 2 year old Taurus looks pretty darn nice...
You might find yourself perfectly
happy in a less expensive neighborhood in a less expensive house. If your
housing costs then end up only being 10 to 15% of you earnings, think of all the
extra money you will have. Plus the "neighborhood" factor changes.
Personally I have found that middle of the road neighborhoods are more friendly
and comfortable than more affluent ones. You also want to consider who you want
your children to think of as normal peers and a "typical" lifestyle.
("But, Dad, everybody flies to Europe for Spring Break!").
So what's are Point?
The bottom line is not to think the
best plan is to always to buy the most house that you can afford (or at least
how much the lenders or Realtors think you can afford). There are many other
issues you have to think about when deciding where to live. The most expensive
places are not necessarily the best places for you and your family. That is a
choice only you can make yourself.
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