Seth’s question is up next. He says, “We hope to buy a home, and even following the methods that we talk about on the show, like 20% down or about 25% of our gross income, it still feels like we’re paying way too much. How can we have peace that we won’t be house poor?”
Yeah, and I think this echoes a lot of people’s feelings right now. So, you know, let’s help them think through this. Let’s first acknowledge that it’s hard and you’re not alone. Real estate— I mean, you can look at all the affordability indicators and it is maybe not at an all-time low, but relatively it is still hard to buy a home, especially for first-time home buyers right now. So, you are not unique in feeling this way. But your question was, how can I have peace?
Well, you already noted that one of the things you’ve done is you’ve listened to the content we’re releasing. By the way, if you’re thinking about buying a house, we have an entire home buying checklist that you can check out. We have a whole home buying hub with calculators you can use. Go to moneyguy.com
A down payment doesn’t have to be 20%; maybe I’m only putting down 3 to 5% because this is my first home. And I know that my housing costs will be less than 25% of my gross income. The question you ask is, how can I have peace even though I still feel like I’m paying a high price or overpaying?
The way you have peace is by knowing that you’re following the benchmarks that will keep you from being in a situation where your life goes into the ditch. If you were to find that your housing is suddenly 45% of your gross income, or you’re uncertain and might have to move within two years, that’s when you can get into trouble. But you can have peace knowing that if we can afford this and we’re following the metrics that we recommend, then you have done what you’re supposed to do. I’m going to say hold your nose—though not really because buying a home is wonderful—but it may not always feel wonderful, especially not in this housing market. Doing these things sets you up to have peace with such a large and frankly scary financial decision.
I want to give you the nuts and bolts of what immediately popped into my mind and maybe even share an experience. The first thing, and Bo kind of talked about this, is that time is your friend. The longer you know you will live in this house, the easier it becomes, as it mellows out the extremes of what we’ve just come through, like houses going up 40 to 60% because of that inflationary period. Yeah, I can see the shock and awe that might be going through you mentally right now because it’s recent enough that you remember what you could have probably bought some of these houses for. When you look at the purchase history of the houses you’re considering, and see what people bought these houses for in 2015 or 2016, you want to throw up. So, I completely get that.
To combat that, the longer your timeline, if you know you’re going to be in this house for 10 years, it helps mellow out a lot of that. The second part is that non-financial stuff matters too. If you have a growing family and school-age kids, maybe it’s the school system or something else in the community that excites you and gives you benefits outside the financial aspect. That will also help you feel better about this moment in time and making such a big transaction.
Here’s an experience I have. Every house I’ve bought—I’ve bought two primary residences for myself in Georgia—the first one was around $190,000. My second house was right around $400,000. But then, when I moved to Williamson County, I had a little shock and awe because I moved up here with a daughter who had special learning needs and another daughter who needed a good public school system. It was hard to get all of the above, and this place checked all the boxes, specifically with the school. When I saw the sticker shock of what houses cost in Williamson County, it kind of blew my mind. I was like, are you sure this isn’t in California? It felt like Brentwood, Tennessee had housing prices similar to Brentwood, California in a lot of ways.
After we bought our house here, for a week to two weeks after closing, I had a gut feeling—not buyer’s remorse, but knowing I was on the line for a nearly seven-figure loan at that moment haunted me for a long period. I have since created a plan, and I think I’m less than $50,000 away from paying it off now. I told myself I’m going to have it all paid off by the book tour. I will have it paid off soon, but I’m telling you, time heals all wounds. Your income will go up if you’re doing well, assuming you don’t screw everything up.
When it comes to a home, for a use asset, it’s okay to not get the absolute best deal. If you don’t get the number one best deal, and you move out in 7 to 10 years and make money, it’s okay. For example, you bought a house, and it didn’t blow up in value, but you had a big life event that required you to take on more debt. Time made that better. Now, it seems like a joke when you see what houses are trading for now.
Misery loves company, and knowing others have had this buyer’s remorse when making big financial transactions can be comforting. You just have to know the coping skills of knowing this will get better over time as long as you’ve made the right decisions to be in the area long enough and are getting enough other value benefits. Cost is what you pay; value is what you receive. All those value elements like community and a good place for your kids can be priceless for you and your family. For more information, check out our free resources.
