Hello new readers! My latest income report is out. Read $9,554 in August Extra Income – Looking for Affiliate Income to see my latest income report.
Most people, at some point in their lives, want to become homeowners. I’m definitely one of those people. Something to think about is how much house you actually need.
Some day I want to get my hands on a nice starter home that I can have some DIY fun with. I want to have a little bit more space than I do now, and I’d like a cute little yard to putter around in.
I don’t need a ton of space, since it’s just me, my husband, my cat and my dog. Children are far off in the distant future for me, much further away than I’m hoping home-ownership will be.
When it comes to how much house I want, I seem to be in the minority.
Most people my age seem to want a ton of space (three bedrooms at least) and a nice, updated home (stainless steel appliances, granite counter tops?).
Of course, these things come at a price, and with the Canadian housing market still going through a soft landing, this usually means the shelling out of a ridiculous sum of money in the form of a down payment, and stretching budgets to the max to make the monthly payment on a huge “dream home”.
Now, I’m biased. I live in a 400 sq. ft., one bedroom house. My little family is comprised of two adults and two pets, and there’s more than enough space for us in our little abode.
So, when I see similar sized families springing for a three or four bedroom, several thousand square foot house, I can’t help but feel that they are paying for at least some wasted space.
I get it. I grew up in a huge house. There was a lot of us in the family, six people plus innumerable dogs, cats, and hamsters. Still, even with a family the size of ours, we didn’t fill my childhood home. There was a dining room, and a living room that we were never allowed in, plus a basement that was used solely as storage. It’s nice to spread out, but is it necessary?
“Back in the day”, having a huge house was fine. The cost of that house when it was purchased was fraction of what the same home would cost today. In this day and age, however, it seems exceedingly silly to pay an arm and a leg for space that isn’t being used.
In most major cities, buying anywhere with a decent location means either paying big bucks, or sacrificing on space. Instead of focusing on how much we can afford, and borrowing to the max to take advantage of historically low interest rates, maybe it’s time to spend some time thinking about how much space we really, truly, need.
Some day in the distant future, I plan on buying a home.
I don’t want a formal dining room, because I know I’ll probably never use it. I also don’t want a second bathroom, because keeping one clean is hard enough. I don’t want a guest room that is only ever used when guests come around, and I have absolutely no interest in paying for a formal living room.
I only want to pay for the space that I’m actually going to use, every single day.
How about you? Are you paying for wasted space in your current home or rental?
Did you buy a big home in anticipation of a family expansion?
Hey everyone! Happy Monday. I want to say thank you to everyone who left a comment on my post the other day about what percentage housing expenses are relative to your income.
I received a lot of great responses and hopefully it will help people determine if a house is right for them or not. So many people don’t realize that there is more to a house payment besides just the actual payment (mortgage, insurance, taxes, maintenance, etc.).
It seems like a hot topic in the personal finance community is whether a person should rent or buy a home. What if you’re not sure if a house is even right for you? Maybe an apartment would be better? There are many factors to think about before you buy a home.
When we were in the process of buying our first home, there were a lot of things to factor in. Yes, we were really young when we bought our house, we were 20 years old. Now, I don’t know if I would recommend buying this young for others. It has worked out for us, but we had to overcome many hurdles in order to get where we are.
We lived together for a couple of years before we decided to buy. We knew apartments weren’t for us (we have a big dog that we could never get rid of because she is my baby, and I lived in apartments nearly my whole life due to us constantly moving for my dad’s job).
My dad also preferred apartments/condos over a house with a yard because there were amenities (such as swimming pools and tennis courts) and he didn’t have to upkeep anything besides what was actually in the apartment. He enjoyed how carefree it was.
Also, W and I had rented a house together, and we knew what it was like to live in a house together. I knew for a fact that I did not want to live in an apartment or a condo. There is nothing wrong with condo living, different people enjoy different things.
Before we bought, I was tired of having no yard my whole life and something that wasn’t “mine.” I have moved a ton (when I was younger I went to a grand total of about 12 different schools), and I just wanted to stay put.
We knew we wanted a house, and the fact that houses were only slightly more expensive in our area definitely appealed to us.
However, we never really thought about how we would feel stuck if we bought a house. We were definitely thinking in the moment when we bought our house. We love our house of course, but I constantly wonder if I would be parading around the world if I didn’t have a house and so much STUFF.
Dreams of traveling extensively while we are young have definitely vanished due to us having to pay my mortgage. Oh well, that’s just the responsibility of growing up! I do love being a homeowner though.
Below are some questions to ask yourself before you buy:
Buying a house means that you will have a constant bill to pay (your mortgage payment of course). So a reliable job and income is definitely needed. If you are freelancing, you will want to make sure that you will have enough to pay your mortgage along with any surprise expenses that may pop up.
Of course, the same could be said about having an apartment as well. An income is needed wherever you decide to live.
If you plan on having kids and still staying the same house, then you definitely want to keep that in mind. However, if it’s just going to be 2 people in the house for a while, then do you really need a 3,500 square foot house?
Also, the general rule is that if you think that you will be living in the house for less than 5 years, that you should just rent instead. The costs of selling before 5 years usually outweigh renting. You will have many costs to pay if you sell, such as closing costs, realtor expenses, repairs, etc.
This is one reason why we regret buying a house (but we still do love having it). Being able to travel for a long period of time is not possible, because we do have to think about how we are going to pay our mortgage payment every month and I’m a paranoid person so I would be afraid of squatters ruining the house if we cannot find a reliable house-sitter.
However, I do plan on making the switch to self-employment soon and traveling at the same time, and we will be keeping the house. We will just have to make it work!
If you have a job/career that will require you to move a lot, then home ownership may not be for you. If you are moving every year, then home ownership will be way too expensive to justify the costs.
Yes, I realize that a lot of people view mortgages as the devil, but for most, owning a house without starting with a mortgage is near impossible. A better credit score (read my post on building credit) leads to a better interest rate, and therefore of course, a lower mortgage payment.
Also, a low credit score will lead you to not even being approved. Get approved before you start looking so that you’re not let down. No one wants to fall in love with a house only to find out that they can’t get approved for it.
We didn’t put down as much as we would’ve liked, and therefore, we have to pay PMI. For our next house I plan on putting a substantial amount down or paying in cash. PMI is so much money every month and I would rather not pay it. Getting home loans without PMI is always great!
This post was mentioned in a Carnival.
Have you ever thought about buying a rental home and becoming a landlord? Maybe you are debating about whether you should sell your current house or rent it out, just like we are.
Last month I talked about whether or not we should pay off our house early. In this post, I talked about the advantages of paying off your home early and disadvantages to that as well. I also brought up the fact that we are debating about whether or not we should rent out our current home when we buy our new home next year.
We plan on living in our current home for at least the rest of 2013. 2014 will most likely be the year that we buy the new home unless something extremely awesome pops up this year.
And yes, don’t worry guys, we already have a plan for how we will work everything out for when I pursue my passion.
Since we do know that we want a new house within the next year, we have been thinking a lot about whether or not we should rent out our current home. The monthly payment is currently around $960 a month (including home insurance and property taxes), and we would want to refinance that beforehand in order to eliminate PMI and to get a lower interest rate (and to save on interest).
I’m guessing that if we could eliminate the PMI and lower the amount in interest that we pay per month, then we could be paying around $800 or $850 a month for our mortgage, home insurance (I’m guessing this would increase with having renters instead) and property taxes.
Since I am looking to join the self-employment world eventually, we would like to become more diversified. Having a rental house will help us become more diversified. The additional income will be helpful as well.
We also bought our house for relatively cheap. We can easily rent out our house for more than what the current mortgage payment is. Plus, once we eliminate PMI and lower the monthly interest, we will be even more profitable.
I have looked at ranges for what we could rent our house for, and it could possibly go for anywhere around $1,200 to $1,500 per month. Our house would most likely be a good fit for a family, as our house is in a safe neighborhood that also contains two good elementary schools (they are literally inside our neighborhood). We also have a fenced in yard, the house is completely updated, and close to major roads and highways.
There are many disadvantages of having a rental house. We could have horrible tenants who will never pay a single month or maybe tenants who destroy the house. Maybe the future tenants will be double horrible and do both of these things.
We know of many people who have told us horror stories about their renters. Some didn’t pay rent for over a year because the eviction laws here are tough. Some had their rental homes completely destroyed by their renters also.
If we sold our house right now, we would probably profit a couple thousand dollars (maybe $10,000 to $15,000) after we pay all of the selling fees and expenses. This means that we wouldn’t have to be negative-anything when it comes to our house. We could then do something else with our future cash flow instead of throwing around $800 per month to our current home’s mortgage payment when we rent it out. Maybe a different type of investment will be more worthwhile with fewer headaches? Would you put your cash towards a different investment?
Also, would the approximate $400 to $700 per month before expenses and taxes be worthwhile? Would the stress just be too much to handle?