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We definitely bought below our means- but it means that we have less financial stress in the long run. DH & I bought a house, mortgage free with our cash savings last year for a little under $100k. Had we taken out a mortgage, we would have been approved for an additional $250k at least (assuming I had continued working and we had 2 incomes coming in), allowing us to buy a home for $350k.
However, the peace of mind that comes with completely owning our own house is worth the sacrifice in our opinion. If there's a change in our financial situation, there are no mortgage repayments to get behind on, so there will never be the threat of foreclosure. Plus, property taxes here are about a third of what they would be on a larger, more expensive property in a better area.
I love our house. My inlaws don't get it- my MIL is constantly emailing me houses from zillow in the $300k+ range, still because she can't fathom that we'd want to live in an older, smaller house like this, when we could get a shiny new build McMansion for 3 times the price!
With that said though, this house is still an 'upgrade' for us- to save up money in the first place to buy a house, we rented significantly below our means for 3 years. This house is a palace compared to the shabby little cottage we were renting, that's for sure!
Besides, I always wanted a 1950s house to go with my 1950s furniture, so I got everything I wanted. Plus, we have awesome neighbors, and this community is established and convenient to all amenities.
Also, as I'm expecting our first baby, having no mortgage means that we can afford for me to be a stay at home mother. With a mortgage, I'd probably have to work at least part time just to make sure we were putting a significant amount away in savings each month / had enough for a rainy day. I think we made the right choice for us in the long run. ♥
Last edited by glamatomic; 03-18-2013 at 08:56 PM..
Have I ever done it, Well of course. Why would I buy a more expensive house I don't need just because I could? I buy what I need and like, not based on the biggest house I could afford. What a dumb basis on which to purchase or build a house. That's a path to take to make sure you never get out of debt.
I bought a house in what I believed to be a "transitional" neighborhood in 2004 - price? $95K although I qualified for much more. I thought this cute little brick 50s cottage would gradually grow in value until I was ready to sell it. I also thought that such a modestly priced home would prevent me from ever finding myself "underwater".
Surprise! My little home (3 br/1-1/2 ba. 2 car detached garage) is now worth about $70K. I am underwater.
Fortunately I recently bought my retirement home with a great interest rate financed by the owners and on a five-year note, so I am moving my belongings there (it's a lake home) and taking a small apartment in the city (where I work) to avoid the hour each way commute until I (God willing) retire in 5 more years.
I'm doing a short sale on my home, and if that doesn't happen I'm giving it back to the mortgage company. Never EVER thought I would be in this situation but the dream of making money on a house seems to be a thing of the past.
We have never owned, but I was very thankful that for our last place we rented somewhere that was well under -- about half the price -- what we could qualify for based on typical rental rules of thumb. We looked at more expensive places that were nicer, but then you start thinking "is it X dollars a year nicer"? A hundred dollars more in rent doesn't sound like much when you think of it by the month, but for each $100 increment you go up that's $1,200 a year, and that starts to add up! We did reach our rock-bottom point, though; we could have gone cheaper, but that would have involved trade-offs that we were not willing to make.
If we ever buy a house I hope to also go the frugal route, although for us location is king and unfortunately the neighborhoods we like best tend to be expensive. That's one of the reasons I think we may end up being long-term renters; as long as it's cheaper to rent in a neighborhood we like, I'd rather do that than to buy. In any case, I sleep better at night when our housing costs are manageable even if our income were to take a big hit. That's certainly true as a renter, and I imagine it would be even more so as an owner.
One of the reasons I like the Central Valley. In the Bay Area, it's really hard to find housing for less than is reasonably affordable by random rules of thumb (33% of gross income on rent, 250% gross income purchase price). There's townhouse/condos in pretty good areas here for well under that 250% of gross here, couple not much above my yearly gross income although they're 1bds. Problem is those houses sell like hotcakes. Two years ago you had your pick of the litter. Now you're probably in bidding wars. I'm slightly annoyed at being subprime (self-employed, no verifiable income) and lenders not lending to subprime anyone back then. Like I'm really going to default on a mortgage that's less than half what I pay on my rent. Okay I'll stop now.
I wish we can buy a house in CA for $100,000 with 5 acres but unfortunately it's not happening anytime soon. My wife and I did bought a small 1,800 sq ft home with a swimming pool after the house market crashed for around $200K. We could have bought more but we wanted to make sure that we can actually survive on just one income. I've seen too many friends who spent two incomes supporting their mortgage and nothing to eat during the house market boom.
Thirty-three years ago I bought a starter home (1200 sq ft) for $30,000. Although my income increased dramatically over the years and I could have afforded a house in the mid-to-high-six-figures, I never felt the need to move. I've remodeled for my own enjoyment and have a small home that suits me perfectly. I also have great neighbors who've lived next door for all those 33 years.
It would be nice to purchase well below my means, unfortunately, I live in a location where purchasing below my means means either high crime, not enough space for my current family situation, poorer performing schools (we have kids), or being too far from work or anything we like to do
My first home was a fixer up and we put many hours in redoig it beforwe we moved in > sold it for more than twice what we had invested in it year later which ehlped. Most people I know did this and we helped each other.
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