Most of you know we’ve had our house on the market for a while now. The first weekend, we had 8 showings and within three days, a contract! Then the contract fell through due to the buyer’s financing. After that, we had plenty of interest and even offers but but no sale.
While putting a house on the market and not selling could be incredibly frustrating, Robert and I actually feel good about it. The experience has required us to take a close look at our income, our expenses and our goals for the future, including retirement and planning for our kids’ educations. We needed this!
Throughout the last few months, I’ve struggled with the idea of leaving our home.
Despite its small size and the things that have irritated me about it over the years, I love my little house. I love my neighbors and I love this part of town. I kept hearing this little voice in my head suggesting that we might not be “done” here yet.
And honestly, the homes in our price range were pretty dismal. Most would require a major investment of time and money just to make them livable. We’d be moving from a very beautiful, comfortable home into a place that would require more energy and money than we really have to spend in this stage of our life with young children.
We considered our options. Everyone kept encouraging us to keep going forward. And several people constantly encouraged us to spend more than we should so that we could have a bigger home in a “better” neighborhood, but –
The idea of buying more than we can afford goes against our value to live within or under our means and plan for the future.
To some degree, we follow the wisdom offered by financial advisor Dave Ramsey to save, buy when you can afford to buy and strive to be debt free. He offers a great plan for getting out of debt and on the road to financial stability (as much as that is predictable).
We don’t agree with Dave that a person should only buy a home when they can put down 20% to avoid PMI. This seems unrealistic for most people – depending on where they live. On the one hand, it makes a lot of sense to avoid the PMI of a loan for which you’d not put down 20% – especially because due to the loan shenanigans of the last several years, PMI is now permanent on some loans.
On the other, if you can buy a home that’s below market value it’s possible that it might appreciate enough in a few years to sell and put down 20% on a home of similar value. However, because the housing market is not exactly predictable, every buyer has to make this decision knowing that a home might not go up in value or at least not as much as they’re hoping it will. Plus, it requires some serious discipline and humility not to think you have to “move up” to something bigger and better.
We agree with Dave Ramsey that –
It’s not wise to commit to a mortgage when one can’t pay the upkeep or make necessary improvements without taking on extra debt.
The cost of upkeep is something buyers often overlook when considering the purchase of a home.
Upkeep can include anything from general plumbing, roof or electrical repairs to paint, landscape (trimming trees) and replacing major items like air conditioners, appliances or water heaters. One way to plan for this is 1% rule, which suggests estimating upkeep at an average of 1% of a home’s value into annual upkeep over the life of ownership. That would mean that on a $180,000 home, a buyer should expect they might spend $1800/year or $150/month. When considering a mortgage, PMI, insurance and property taxes, the extra $150/month is a significant additional expense. You can read articles about this on MSN money, Budgeting.about.com and the National Association of Builders.
Because of the major expense of annual upkeep, I agree with Ramsey that it’s ok to rent if owning a home would put a strain on monthly cash flow and not allow for savings.
But I also have a slightly different outlook from Ramsey, thanks in part to my husband’s “live now” attitude and my own life experiences.
While I believe in saving, being wise and planning for the future, I also know that life is unpredictable, short than we expect and should be enjoyed now.
We are learning to plan fun into our budget now instead of waiting for the future. We haven’t always done this, falling into the category of being so frugal I didn’t buy clothes for myself, makeup or get my hair cut. Rob and I also never went out alone just for fun. A wise friend said to us, “It’s great that you two plan and save so carefully. But what are you working toward? You need to enjoy your life now.” Wise words.
So, I don’t agree with Ramsey that paying $3 for a cup of coffee is a waste. I’m not paying $3 for coffee, I’m paying to spend time in a space I like, with people I enjoy and get a little breathing space away from the kids. In my book, that’s a well-spent $3!
Life is meant to be enjoyed and as long as I don’t have to go into debt to buy $3 cups of coffee, I’m going to budget for them.
That said, we needed to make a decision about our house after being on the market since April. Here were our 3 options:
1. Significantly drop our listing price, which would leave us short a good down payment or reserve cash. Although we wouldn’t make much on a house we’ve spent significant money upgrading, we’d still be free of the responsibilities of home ownership for a while. Also, we could probably rent somewhere inexpensive and save money we’d normally spend on upkeep.
We don’t mind the idea of renting but truthfully, our mortgage is so low now, we can live at our current home for less than renting a two bedroom apartment elsewhere. That includes upkeep.
2. Buy another home and rent our townhouse to someone else. EXCEPT – we can’t afford to carry two mortgages PLUS upkeep on one income. We don’t have the reserves to go without a renter and it’s likely at some point we would lose the rental house.
3. Take our home off the market, refinance it (due to market fluctuations, we have been unable to do this until now) and sit tight a little longer.
And for now –
We’ve decided to go with option three and stay in our current home.
We spoke with trusted, wise friends who, respecting our values, goals and situation, offered us their thoughts. We’ve decided to refinance and put the little extra monthly into savings and upkeep on the house.
And the experience clarified my current thoughts on home ownership, which have changed significantly over the years. Here they are.
A house is not an investment.
A house may or may not go up significantly in value. While over time, houses tend to go up in value, the timing is not predictable. If the crazy housing market of the last few years hasn’t taught us that, we’ve not been paying attention.
A house is a place to live.
Choosing a mortgage that fits well within our means is a way of ensuring (at least to the best of our ability) that we’ll have stable housing expenses and a place to live in the future.
So, here’s where we are.
We get to stay in a house that is familiar, in our favorite neighborhood, with neighbors we love.
It might be small but we can make it work. After all, many people in the world would consider our home a mansion.
For those of you who prayed for us and encouraged us, thank you.
We felt it and know it contributed to our decision. We feel good about where we are!
We’d love it if you’d share your experience and wisdom in choosing a home, purchase or rental!
And as always, if you liked this – share it.