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Buying a More Expensive House – Smart Financial Move? April 16, 2007

Posted by pf in Expenses and Savings, Goals, Uncategorized.

I have written in previous posts that we are in the process of saving and researching for the purchase of a newly built custom home.  We are very serious about this.  We have already purchased a lot and have paid an architect an initial sum to begin drawing up preliminary plans.  As I go through the process, however, I am struggling with whether or not this is really a good financial decision. 

We bought our current (and first) house with a 30 year mortgage of 8.25%.  From a financial perspective, it was all we could reasonably afford as my wife was no longer going to be working so she could be a stay at home mom full time.  However, we did manage to provide a healthy down payment of over 25%. 

Since our initial purchase, we have refinanced the house quite a few times where we are now on a 15-year mortgage at 4.75%.  Amazingly, this payment very similar to our original payment…just 15 years shorter!  For the last couple of years, we are actually feeling like we are making progress on our net worth as we are no longer making big home improvement purchases, getting healthy interest from our cash accounts at almost 5.50% APY and are paying down over $700 / month in principal in our mortgage.   Also, my income has increased through subsequent promotions, etc. 

Our family is growing and we feel like we need more space.  To get the house we want, I think we will more than double the amount we owe on our current mortgage.  In addition, we will need to finance it at a 30 year (versus our current 15) and anticipate property taxes to double.  My concern is – does this make good financial sense?

Right away, I see all the minuses of this proposition:

– additional interest in the hundreds of thousands over the life of the loan
– increased monthly payment
– thousands more dollars in property taxes
– increased utility and maintenance costs
– more pressure on income needed to meet increased debt obligations
– less $$ that can be put toward retirement savings

Of course, there are also positives:
– very desirable neighborhood
– lot size twice as large
– nicer / more spacious house
– potential for accelerated appreciation versus current home / neighborhood

The most compelling argument for me thus far is that our current neighborhood is your typical younger family with a few children in houses made by a big name, production builder and I don’t think it will retain its “shine” over the longer term. We love our neighbors and our kids have plenty of great friends, but we can already see the effects of weather, etc on the homes. Further, I sometimes get the sense that as the neighborhood gets older, the demographic is changing somewhat and some are not taking as much care of their homes, etc.

In contrast, the “new” neighborhood is more affluent / desirable and the homes of better construction (custom) that I think will remain so over time. However, I am still left with this uncertainty as to whether or not it is the best move for us financially over the long term for the reasons I mentioned above. Also, I tend to be a bit of a worrier, so that certainly plays a role.

Anyway, I have started to do some research to see what others have considered in this situation when weighing the pros / cons, etc. Thus far, I’ve been pretty disappointed. While I can find a lot of material on renting versus buying, etc…I have found very little pertaining to my specific situation. However, I will continue to looking. Ultimately, in absence of anything else, I will develop my own analysis, but I would really appreciate any resources or other advice anyone could provide to assist me.



1. Around the PF Blogosphere: April 16, 2007 | The Sun’s Financial Diary | A Personal Finance Blog on Saving and Investing - April 16, 2007

[…] Personal Fiance Odyssey wonders if buying a more expensive house is a smart financial move, I asked myself the same question when I wrote Uncle Sam a big check […]

2. Livingalmostlarge - April 16, 2007

Depends really on where your salary is, what your savings goals are, and what you are willing to give up to get a bigger home. Older cars, less vacations, etc?

Personally I would get a nicer home, take less vacations, drive older cars, but that’s ME. I believe that I spend most of life in a house, I don’t need to go to Europe every year, but I’ve already made my decision. I wonder if I’ll regret it. I know honestly in some ways I have regretted buying a house in my 20s when if I had used that money to travel I would be well versed in the world.

But when all is said and done I do love my house. I wouldn’t be able to have afforded it at my age if I didn’t buy at 22. But I didn’t get to backpack Europe because of it.

Choices…life is all about choices. And the other one, postponing kids right now to make sure I can choose to stay at home or not easily. I’m making a sacrifice now for a future investment. That’s the exact question here. Make a sacrifice for tightness now for maybe security later?

3. jh - April 21, 2007

I would stick with the house you are in. I bet your mortgage is your single biggest expense each month. Just think how nice it would be to have your house paid off. If you get a 30 year mortgage how old are you going to be when you pay it off, 60+?

Think of having your house paid off as a huge tax-free dividend coming in every month. Think about the peace of mind of eliminating one of your biggest expenses.

4. pf - April 23, 2007

Surely, our mortgage is the single biggest recurring expense. I think about how nice it would be to have it paid off a lot! I’ll be 64 if I actually stick with the 30 year mortgage for the full term.

It does not take a lot to get me dreamy eyed about the prospect of having my house paid off. What remains my challenge is how to reconcile that desire with my other wants / needs described in my post.

I had a long discussion with my father-in-law this past weekend which has given me some food for thought. Also, coincidentally, there were quite a few articles about home buying in this month’s issue of Money Magazine which were also somewhat informative.

I’m still looking for more input…thanks for your responses thus far.

5. dave neal - April 25, 2007

as a purely financial decision, building the new house probably isn’t the optimal way to use your money. this is because the housing market is at a near-term top or close to it. however, this is not purely a financial decision. i would suggest that if your current digs are too small, the comfort you will derive will be worth the added expense.

here is my story. wife and i (no kids) bought our first house in suburban n.j. at age 29 in 1979. it was a small three bdrm split level in a nice neighborhood of like houses (three floor plans). although not the bottom, the market climbed and we built a large custom house in 1986-7. this was near the peak of the market. we held on to that house until we retired in 2000. being a custom house, it took a while to sell it. anyway, we were able to walk away with $300,000 in equity from our two houses. we now own a medium sized place on 6 acres in the colorado mountains, purchased for $310,000.

so, although we could have paid off our first mortgage instead, we opted to build and although it was not the best financial investment we ever made, it was not the worst, and we don’t regret doing it. we really did enjoy living in the house we built.

so, if i were you, i’d probably go for it.

6. pf - April 25, 2007

Thanks Dave – I thought your feedback was both thoughtful and practical. I think I’m getting to a point where I’m fretting less about whether or not it’s the smartest financial decision (although it hurts to think it’s probably not the best move from a financial standpoint). However, I still have some reservations and am working through it…thanks again!

7. plonkee - April 27, 2007

I think in this case, once you determine whether or not you can afford to do it, its not really about the money.

If it will really make you feel better to have a mortgage paid off on a house that you aren’t that fond of, than to be paying a mortgage for another 15-30 years on a house that you like then you should stay where you are.

Or, if it will really make you happier to live in a nice house and not be able to afford exciting vacations and newer cars, then you should move.

Either way, its really about the lifestyle that you want for the future, and whether you’re happy to live with the decision, even if it should turn out not to be optimal.

8. Jessi - April 17, 2008

I’m in the same boat and I want to move. My neighborhood has declined in the last five years (similiar to your experience) and although we have made a home here (with five children), as they have grown our house seems to have shrunk. For us, we feel the security of our family in the long term (meaning I’m not sure where the neighborhood is going) is certainly worth the cost. Also, financially, appreciation will continue to go up on your new house and although you may purchase for $200,000 in 20 years from now it may be worth $600,000. I think there is a different financial angle to consider beyond today. Perhaps you’ll rest easier at night knowing that one day your new house may give you something similiar to “winning the lottery.” Typically, a custom build is more sought after than the standard “cookie cutter” home. Also, you could continue to rent your old home which may provide some additional income if the rentals in your area are higher than your mortgage. This would provide you and your family with a little extra $$ towards your new mortgage, plus you would be gaining equity in both homes over the years. One last thing I would consider is how does your spouse feel? If your spouse is adament one way or another it may be difficult to have a blissful marraige if the other person is completely miserable with the decision. Sometimes peace and harmony can be worth the extra expense 🙂

9. pf - April 20, 2008

Although there are always exceptions, I’m very skeptical that buying one will prove to be a winner of an investment as such…and certainly no lottery winner. Although I have considered it, I do not believe my current home is a very good prospect as far as being a rental. My spouse is still very much wanting to make the move (as I do I…ultimately), but is willing to wait and see how the housing market is going to play out (particularly if it creates favorable purchasing conditions). Although we have debates and do not always see eye-to-eye on this topic, I wouldn’t consider a big source of friction in our relationship.

Somewhat related, we recently had a night out where we spent some $$ for the pleasure. I think what I struggle with the most right now is trying to figure out what kind of life I really want to have. Modest house and more nights out like that one? Earlier retirement? A bigger house creates conflicts with some of those goals. I’m not sure there is a right or wrong answer…but just choices to be made.

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12. Greg - January 30, 2014

If you find something you like and it works financlally…go for it!
A house is something you enjoy every day.

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