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Which is Better? Living Debt Free in A Modest Home Or Having A Large Home and Large Mortgage?

December 6, 2010 · 43 comments

in Home & Garden, Personal Finance

Disclaimer:  The opinions shared in this post are in no way a reflection of fellow writer Money Reasons.  This post is solely based on a family he knows and that he wrote about on his website.

Do you ever read an article and find yourself screaming at your computer or the newspaper, saying “What are you thinking???”.  I found myself doing this when I read a post at Money Reasons.

A synopsis of the post is this:  Friends of Money Reasons were lucky enough to win a house a few years ago.  This couple is in their 20s, and are college educated.  I do not believe they have any children, although I cannot say for sure.  These friends recently decided to rent out their ‘free’ house for a thousand dollars a month, plunked down $70,000 in saved money for a down payment, and bought a 4000 plus square foot house that is full of amenities.

This decision bothers me on many levels, none of which is jealousy.  (Honest!)  Let me list my issues with this decision:

  1. What young couple needs so much space?
  2. Why would you go from being debt free to possibly being house-poor in this economy?
  3. It will take 3 incomes to pay the mortgage:  His, hers, plus rental income from the ‘free’ house.
  4. So much money will be wasted on taxes and utilities.
  5. They have sacrificed future ‘options’ in favor of having a huge house.  If kids come along, chances are they will have to still rely on two incomes, which means the option for one parent to stay home with a child will not be a viable one.  There are a million different ways that spending an extra thousand or two a month can affect your life over the long haul.  Is a large house really worth that?

One possible good thing in this decision MAY be that this house COULD appreciate in value over time and be a decent investment.  That is assuming that the market recovers at some point.  However, as we have learned, there are no guarantees with the housing market.   Will they also outgrow this house over time?  Will the need to climb the house ladder continue over the years?

Why am I being so judgmental?  Probably because I have personal issues with ‘excess’.  I am not a spender and I don’t need much.  Therefore, this type of purchase just goes against my core beliefs.  But I have pretty crabby beliefs in this area that I am sure many readers do not agree with.

So what would I do if I were in my mid 20s, had 70k saved up and had a free home?  Well, lets assume I really wanted to move for some reason, or had to move and couldn’t stay in my free house.  I would do the following (based on the logic of a 43 year old):

  • Research local school districts and only consider homes in a good school district.  I would do this regardless of whether or not I planned on having kids as the school district can greatly affect resale value on a home.   (Although you could also question the logic of paying for a good school district you would never use if the taxes are higher for that district and you never plan on having children.)
  • Either sell the free house if I could get a decent price and use the proceeds from the house sale plus my saved money to buy a home free and clear.  Or, I would rent out the home as the current owners are doing and get a mortgage that could solely be funded from the rental income.  Either way, I would be house payment free and loving life.

If this young couple could start out their life debt free, the world will be totally open to them.  They could save so much money and pick a career they truly enjoyed instead of being stuck in a big home that requires 3 incomes to maintain.  To me, happiness comes from security and having options.  Feeling trapped would make me very unhappy.  As I have gotten older, I have learned that freedom means way more to me than having a media room in my house.   I enjoy making money to fund future goals like traveling; not to pay for a house that is bigger than I will ever need.

What do you think?  I recognize that many people probably think “cool, good for them for buying such a nice home”.  I guess my perspective is built around the fact that there are a lot of things I would rather do with that money, so the purchase doesn’t make much sense to me.  A house is a lot more than a mortgage payment.  There are tax payments, utilities, maintenance, repairs, and so much more that go with home ownership.  Is structuring your life around housing expenses worth it?  Not to me.

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