Let’s Bring it Home

I have a confession.  I’m sick and tired.  Tired of hearing the same old commercials talking about how low mortgage rates are and how you MUST act now to take advantage of these super low rates because they “won’t last long”.  I don’t believe I’m exaggerating when I say I hear those commercials on the radio or see them on what little TV I watch at least 3 to 4 times per day.  Celebrities are getting in on the action too (i.e, a certain soon to be NFL Hall of Fame quarterback with a big personality for TV).  Granted those commercials are clever and catchy, but I cringe when I hear some of the tactics, they use to sell their mortgage services.  As a country we have changed significantly in the past 3-4 decades when it comes to our housing options, expectations, and desires. And these changes can be dangerous for those on the edge of financial troubles or even those just starting out in life.  Let me explain my concerns and then give you some suggestions on how to insulate yourself from these potentially problematic sales pitches.  Oh, and by the way, I fell into similar traps in my past and spent way more than I should for all the wrong reasons. 

First, let’s talk prices. According to a May 21st Wall Street Journal article, home prices were up 19% in April over the same period a year ago.  What that means is if you were looking for a home a year ago  listed at $250,000 that same home would now be listed at $297,500.  That extra $47.5K can make a huge difference in payment, required down payment, taxes and even insurance costs.  A market where home prices are increasing at double digit rates is great if you’re selling a home but can lead to a disastrous result if you’re looking to buy, especially if you have no home to sell.  All of a sudden you begin to justify spending more, often tens of thousands of dollars more just to own that home. 

And speaking of that desire to own a home, that too has changed in this country over time.  It wasn’t until the turn of the century that Americans went on a full out push toward home ownership.  Many sacrificed savings in exchange for being able to claim their status as a homeowner (which is actually not a true statement unless you own your home outright – for the rest of us, we’re just working toward homeownership as we pay down our mortgages each month).  Don’t get me wrong, buying a home is a great step IF taken at the right time and with the right financial foundation built ahead of it.  If you don’t have an emergency fund established, it is not the right time to buy a home.  If your income is unsteady or uncertain, it is not the right time to buy a home.  If your consumer debt such as credit cards, auto loans or student loans keeps you from   having anything left over at the end of the month it is not the right time to buy a home. If your market is in an extreme state of price increases, it is not the right time to buy a home unless of course you have a home to sell.  If you are not certain you will stay in a certain location for a reasonable amount of time, it is not the right time to buy a home.  Taking all these factors into consideration will help you make the right decision about when to buy and when not to. 

Let’s assume it is the right time to buy, be aware of the words your realtor or mortgage company may use in helping you find the right home.  Asking “What do you want in a home” and “What do you need in a home” are too very different questions that will result in two very different outcomes.  Buy what you need.  Statistics show that on average we only use approximately 40% of our homes these days.  We want the extra bath and guest room for those once-a-year visitors.  We want a dining room that may get used during the holidays or other rare and special occasions.  We want a three car garage to hold all the stuff we have no place else to put.  Evaluate your true needs and the benefits of buying for what you’ll use 90% of the time.  Every other need you have can be met via creative thinking.  Let me give you an example.  Like many, when I was climbing the corporate ladder I bought bigger and bigger homes simply because my income was increasing and with it my desires and a sense of competition, more about that in a bit.  That would have been fine had the rest of my finances been strong or if I truly was aware of how my thought processes were developing.  It wasn’t that I needed more room, I just wanted it.  It was a horrible game of false status I was playing and it cost me.  Selling real estate is expensive.  The fees required to sell a home can take tens of thousands of dollars out of your pocket.  So, when I finally wised up and saw the ridiculousness of my circumstances, I had to pay dearly to correct it.  I’m not alone in that story either.  As Josh Becker, Becoming Minimalist, shares in his recent publication “We made the mistake of buying bigger and bigger houses with each pay increase during the first decade of our marriage. It wasn’t until I was introduced to the benefits of minimalism that we eventually downsized into a smaller home—a decision we have never ever regretted.”

I often reflect on the home I grew up in.  It was small by any current comparison.   In fact, CNN recently reported that the average American home has tripled in size in the last 50 years.  Did you catch that?  Tripled! My childhood home would  support that data and was not unlike most homes in the late 1960s.  It was a 1200 square foot single floor home with two baths and 4 small bedrooms.  And yet, my family of 5 survived just fine there.  It got a little contentious as my 2 sisters and I grew up fighting over bathroom time and our lone brother had to make the best of it all in the midst.  But you know what I remember most about that home?  It isn’t the bathroom squabbles or the small closets or the one, yep ONE TV we all shared.  It was the amazing meals my mom prepared for us all to eat.  It was the front yard games of Red Rover and Dodge Ball that I remember with neighborhood kids.  It was working with my dad in the carport – yep no garage there, when cleaning out our one family car.  Those are the memories steeped deep inside my long term memory that can never be taken away and that give me great comfort. 

Small homes provide so many benefits (I’m not talking Tiny homes as that’s intriguing but an extreme step to take for anyone).  Smaller homes can be easier to maintain, are typically less expensive, come with less financial risk and less environmental impact, and free up our resources to pursue the things in life we are passionate about.  When my husband and I downsized, or as I like to call it rightsized, we found ourselves in a 2 bedroom plus an office, two bath, one level home.  I was literally dancing with joy when I began to experience only cleaning two, count them two, toilets!  That was half the toilet cleaning I was responsible for prior to our move.  We have one guest room that we use  3 to 4 times a year.  On the rare occasion we need more beds, we pull out the air mattress from the basement, throw it in the office and that’s where my hubby and I stay while we treat our guests to the other two bedrooms.  It works!  And for the other 360 days a year, we are content in knowing we are not paying for space that sits empty.

As I alluded to a moment ago, one of the battles I had to fight was the battle of comparison. I actually believed people put a value on me as person based upon the size of the home I lived in. I could not have been more wrong.  With the bigger home and bigger mortgage, I had less resources to spend on the people in my life who matter.  I had less time to spend with those I cared about because I was busy maintaining my oversized home or working like a maniac to make sure I could stay in that lonely behemoth of a home.  And, I had less money to give to the people or causes I cared the most about.  It became an emotional burden that far outweighed any wins I thought I had in the comparison game. 

Many financial gurus recommend not buying unless you can put at least 20% down on a 15 year mortgage where your payment is no more than 25% of your income.  That can seem like hard guidance to follow, especially the 15 year mortgage piece of it.  And yet, there is such wisdom in it.  Buy a home that works for you instead of a home that becomes a ball and chain to your life.  Steer clear of mortgage brokers and real estate agents whose sole focus is on their earning potential and not your financial wellbeing.  Never agree to look at homes that are outside your comfort zone.  And always, rely on a trusted friend or relative to make sure your decision is a WISE decision based upon fact and not an emotional decision based upon desires of the heart.  If you can do so, you will find yourself grateful for the home you have and the financial and personal resources you find yourself with for years to come.