Is it a Big Mistake to Use 90% of Our Savings on Home Buying?

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Dear Penny,

My boyfriend and I are both 34, have been together for 10 years, and together make about $ 10,000 after-tax a month. I donate 5 percent of my annual salary to charity. We have no other debts other than my graduate school student loan, which should be paid off in three years.

About four years ago we bought a small, inexpensive house near where we work. The house was less than what we could afford so we could save up and eventually move back to a city we both love and which is very expensive. We wanted to keep the house and rent it after we moved to diversify our investments.

We’ve saved about $ 150,000 in the last 10 years we’ve worked. I think we should use 90 percent of our savings to finally move to the city. I’m nervous that if we wait we will get priced again due to high home costs, rising interest rates and inflation.

While this has always been the plan, we are nervous about using so much money at once. My family didn’t have a lot of money when I was growing up, so I always hoarded money and was afraid to spend money. What if there is another recession soon? We have a cheap, simple – if boring – life in our current city with many friends. We’re basically going to have to start from scratch to build a life, even though it’s going to be in the city we both love.

Also, most of the properties in this city are outside of our price range. We can’t make up our minds whether to buy a condo we don’t like, wait for the right home, or buy a cheaper home in an up-and-coming neighborhood. I am concerned that a condo will not have a good resale value or even impossible to sell. Should we buy a second home? Should we buy a condo or keep looking for a home within our budget?

-Insecure investor

Dear insecure,

Buying your dream home is not buying your dream life. You could buy the perfect home in the city you love. Even so, life gets boring when you can’t afford the big city life because the cost of housing is a strain on your budget.

It sounds as if there are four options on the table: stick to the “right house” in the city, the cheaper own home in the up-and-coming neighborhood, a condominium or stay where you are.

Robin Hartill [ The Penny Hoarder ]

I don’t think you should use 90 percent of your savings to buy a home. That’s not to say that spending 90 percent of your savings on buying a home is always a bad move. In fact, in today’s overheated real estate market, the only way many people become homeowners is if they spend a large chunk of their savings. But I doubt the $ 15,000 you had left would be enough for the recommended six-month emergency fund. The fact that you are scared of spending makes me think that you should proceed with caution.

The apartment is easy to lock out. You doubt its worth as an investment, and it doesn’t sound like you want to live in one.

So you have two options: move to the up-and-coming area of ​​the city or stay there. I can’t tell you which is the better option for you. It depends on whether you crave stability and connection over the novelty of a new city.

As you wrestle with this decision, try not to put too much emphasis on what your goal was a decade ago when you bought your current home. When life changes, so do our priorities. What you wanted 10 years ago may not be what you want now.

Also try to be realistic about what city life would be like to you. Visiting a place is very different from actually living there. Now, if you’re homebodies, moving to the big city probably isn’t going to turn you into a pair of jet-setters.

Your economic concerns are certainly justified. But if you have a house that you actually want to live in and that fits your budget, a recession isn’t all that worrisome. If you have been committed for several years and have healthy savings, you can afford to wait for a downturn. I wouldn’t worry so much about a future home being priced out as you will continue to build equity. Also, once your student loans are paid off in three years, you will have more room in your budget if you decide to upgrade.

It’s true that buying a home is an investment, and real estate is a good investment over time. But more importantly, your home is a place to live. Focus more on what you want in life and less on future resale value.

Robin Hartill is a certified financial planner and senior writer at Penny Hoarder. Send your tricky money questions to [email protected].


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