web analytics

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

December 6, 2010 · 134 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.

If you enjoyed this post, please leave a comment or subscribe to the RSS feed to have future articles delivered to your feed reader. Thanks for visiting!!!

{ 35 comments… read them below or add one }

Money Reasons December 6, 2010 at 6:30 am

I personally know if I were them, I would probably buy an decently priced duplex or a triplex instead of that huge (to me) house (living in one of the units). That would be the beginning of my real estate portfolio!

Say they didn’t have time to manage it? Well since they are already deep in the green (from the free home they won), they could buy a duplex, triplex or larger every year, and then contract the act of managing those units out from the cash from their first free house!

I’d guess that within 7 to 10 years they would be sitting pretty financially!


Kris December 6, 2010 at 4:12 pm

Yeah, there are a lot of different options than could consider that would probably be better financially. I hope they both keep their jobs so they can afford their nice big house.


Money Reasons December 6, 2010 at 5:26 pm

Yeah, me too! I’m thinking if one of them do lose their jobs, it would be a good learning experience for them.

Your RSS icon is season appropriate and just plan awesome!


Teresa Fiore December 6, 2010 at 6:36 am

I truly believe in living within the income of the head of the household. To get anything else I think it should be paid in cash. When trying to get a more expensive house I think they should of lived in their free house until they saved enough money to pay cash for the new one they wanted. Being debt free is the best way to live. I also believe it is important to be a stay at home mom if at all possible (for some that is not possible). Our kids are so very important.


Kris December 6, 2010 at 4:15 pm

Teresa- It would be ideal if everyone bought a house based on just one income (or with cash outright!). However, bigger and bigger houses were being built for a long time, and people buy with their eyes instead of their brains.

You are right in that buying with just income does allow a family to have the choice for a parent to stay home with the kiddos. I have loved being home with the kiddos, so I am glad we bought what we thought we could afford vs. what we were told we could afford by the mortgage broker.


Countertop Granites December 6, 2010 at 6:48 am

It’s a no brainer. You’re dead on about #3. We can argue all day whether it is better to save or indulge, but requiring three incomes to feed a house is just ridiculous. If any of those income stream goes away (say due to health issue or a natural disaster), the whole leveraged *house* of cards will come tumbling down. That’s no way to live.

I suppose some people like living dangerously…


Kris December 6, 2010 at 4:15 pm

You are very right, it is a house of cards that is built on a foundation of a poor economy. Very scary.


The Biz of Life December 6, 2010 at 7:44 am

Wait to see what dominoes fall if they can’t rent out their rental property for a 6 month stretch. It is going to be ugly. To me, it’s a brainer to live in a modest house with a low to no mortgage. Continued employment is so uncertain these days.


Kris December 6, 2010 at 4:17 pm

Biz, there are so many great house deals out there that I don’t know why they didn’t make a more ‘reasonable’ financial choice. (Meaning one that did not require 3 incomes.) I think many people are out there house shopping thinking ‘but I can get this giant house at such a good price’, instead of thinking ‘I could buy a nice house and have almost no mortgage!’


101 Centavos December 6, 2010 at 8:08 am

Agree with Biz, I would much rather live in a small house with no mortgage. The problem with having a big inside space is that you feel compelled to add “stuff” to fill it up. I did a somewhat disconcerting exercise the other day, counting up the items of “stuff” in our family room alone, including all knick-knacks and paddywhacks. The sheer number was astonishing.


Kris December 6, 2010 at 4:19 pm

You should stop by my family room and you would cry looking at all the miscellanea (is that a word?) lying around. (3 teens will do that to a room…)

You are very right though, it takes a lot to furnish a big house (and heat it, and cool it, etc). It is one thing I guess if you have a bunch of kids, but to me in your mid 20s and childless? These are the years they could be banking a bunch of money. Instead, they will have a big house with a nice media room.


Nicole December 6, 2010 at 8:14 am

Also take note if the school districts change every 5 years and the school board is crazy nuts. There’s a reason only retirees are moving into my HOA.

My father owned rental properties. This is NOT something you want to do if you have to have a stream of steady income from the real estate. Invariably you will get tenants who cannot pay or you will have a hard time renting out the place. Sometimes one of your tenants kills his wife in the study and you end up having to donate the house to the local university because you can neither rent nor sell it, even after replacing the carpets. Like Biz of Life says, this gets ugly, even with a local house manager taking care of things.

I totally agree about how ridiculous it was to buy an enormous house that requires all that money just to pay the mortgage! (Today’s post on my site also discusses other unforseen expenses that we had.) Definitely a house of cards with fate poised to knock it down.


Kris December 6, 2010 at 4:21 pm

Yikes, the story of the murdered wife paints quite a picture- perhaps this really happened on a property your dad owned?

Renting has scared me to a degree because you really don’t know what you are going to get. Eviction and such are things I would rather not deal well. Yet, a stream of rental income sounds nice too. I guess I just want money without dealing with any problems!.


Nicole December 6, 2010 at 5:27 pm



First Gen American December 6, 2010 at 9:35 am

The house in this story is a condo and I hate condos, so I definitely could see myself moving out of a condo and into a home. A condo would probably cost less than a comparable home, so I can see up-sizing some in terms of house cost.

BUT to buy a monster house that requires 2 full time incomes + your rental income is unbelievably risky in my opinion. Counting on everything staying the same (no job losses, illnesses, or bad renters) is either incredibly naive or optimistic.

It wasn’t clear if they needed to keep the condo for a certain length of time as a contingency of the prize, but I would only buy a house that I could afford on 1 income..1.5 tops. (assuming you’d either get rental income or have a second job).

Higher taxes, utilities, insurance and upkeep are big negatives too. For me, we opted to live in an area that wasn’t in the best school system and I’m sort of regretting that now, but it would’ve meant paying about 40% more for the same house. That was just too big a premium to pay for when I didn’t have kids at the time.


Kris December 6, 2010 at 4:23 pm

I know what you mean about the condo thing. I would not be a huge fan of that either. However, they had a lot of money saved so that they could have bought something much more affordable. But, they are young. Who knows what I would have chosen in my mid 20s. I dont’ think I would have bought a giant house, but you never know.


Deidre Lin December 6, 2010 at 1:16 pm

Hindsight is sure nice I’ll tell you. Yes, I’ve owned property, sold property and maintained multiple properties at one time. There are pro’s and con’s to the scenario you described. The one thing that sticks out for me is that the couple is making this decision at what appears to be the worst possible time. Maybe they are getting this advise from another person, who knows.

If it were my kids (and I do have kids their age) I would have advised to keep the $$ in the bank for now, live mortgage free and bank even more $$. When the real estate market bottoms out one can get many properties for almost nothing and rent those out. My motto is never put yourself in a situation where you can lose the roof over your head.

Square footage issues asside, Condos are not easy to unload so this should be their primary residence, IMO, since it cannot be sold on a whim – and its mortage free. I know of many people who bought into condos and wish they hadn’t and now cannot unload them. This condo is their only real asset since it is mortgage free.

Personally, I’ve downsized ALOT in the last 2 years and went to an all-cash basis. Given the current state of affairs, I’m so glad I made that decision!! I sincerely hope their decision does not come back to haunt them & things will work out well for them.


Kris December 6, 2010 at 4:26 pm

Deidre- I too worry about this coming back to bite them in the future. I can totally just envision them going out and spending a ton to furnish the house and making it perfect. Sounds like a lot of work.

Condos are tough to sell right now, no doubt about it. It probably would have been smarter to sit on it a few more years while they accumulated more money and had a better idea of where life was going to take them.


Deidre Lin December 6, 2010 at 6:47 pm

Well, the other thing in this situation is that these are young adults who probably have never been in the situation of having a large nest egg. Unfortunately it appears someone is giving them some potentially bad advise.

Hindsight 🙂


retirebyforty December 6, 2010 at 1:52 pm

I agree with you 100% on every point you made. 🙂
They should not buy a house they could not afford. It is a slippery slope from there.


Kris December 6, 2010 at 4:27 pm

Why thank you RB40.

By the way, I loved your funny icons post.


Roshawn @ Watson Inc December 6, 2010 at 2:19 pm

I don’t have a problem with excess, but I do have a problem with excess for your budget. If the only way they can afford the home is with rental income, then I don’t personally think they can comfortably afford the home. At the very least they know how to save, meaning they can live beneath their means. Even with a debt-free home, there are many who would not have been willing to save $70K. I guess my point is, on the scale of dumb, they could have done a lot worst 🙂 I still understand where you are coming from too though!


Kris December 6, 2010 at 4:28 pm

Well, I didn’t really think about it on a scale of dumb! 🙂 I guess time will tell how dumb it is. If they end up foreclosing, it ends up pretty high on the scale. It is is sitting on an oil field or appreciates hugely in value somehow, then they will be high on the smart scale! We will need Money Reasons to keep us updated!


Little House December 6, 2010 at 3:45 pm

I couldn’t agree with your more. I wonder what their underlying reasons for buying such a big house really are. Are they trying to “out do” some of their friends or family members? Do they have 5 large dogs and are planning on having 3 or more kids and really need all that space? I like nice houses, but I definitely lean more towards small to medium on the size. But maybe that’s just me!


Kris December 6, 2010 at 4:30 pm

I think they should have bought one of the ‘little houses’ you like so much with cash! 🙂

I am betting they were just so excited at what they could afford that they probably just jumped in and made what to me seems like a risky decision. I would probably feel kind of lonely in a house that size.


Crystal @ BFS December 6, 2010 at 4:47 pm

I’m right there with you. I would much rather be debt free than voluntarily take on a maintenance issue of that size. I guess it’s truly all about priorities…


Kris December 6, 2010 at 10:56 pm

My priority is save up some cash and travel one day! I guess people might say that is a waste of money though.


Barb Friedberg December 6, 2010 at 7:47 pm

Can you hear me screaming? This is just stupid on so many levels. Fortunately, you covered all the reasons this is crazy, so let me just say-excellent article and informative too!


Kris December 6, 2010 at 10:57 pm

Barb, I think I did hear you screaming! I was screaming when I read the post the first time, but I don’t think the new home buyers heard me…


Squirrelers December 7, 2010 at 12:53 pm


I totally agree with you. These people could have made decisions that could have made the quality of their lives better, through living with less financial obligations and stress, by avoiding the big home purchase. They don’t NEED such a big home, it’s just a want.

Of course, I’m on the doorstep of 40 and have some pretty extensive life experience even then, so maybe my perspective is different than theirs. But, I suspect that they will realize that we are right, at some point in the future.


Ken @Spruce Up Your Finances December 8, 2010 at 12:28 am

I think I prefer a home relative to the size of the family. I do not like the idea of having a large home because it is just hard to clean it. In addition, I do not like the large mortgage balance and having to work two just jobs just to meet the obligation. I’d like to be able to enjoy the house as well.


Mark December 8, 2010 at 3:27 am

I would have stayed in the free house with no mortgage. Why take on so much debt just to live in a bigger house? If you want a bigger house then stay in the free house for 10 years. Let the price appreciate it then sell it.


Shirly Pickersgill December 11, 2010 at 6:50 pm

Superb evaluation, one of the greater content I have go through lately on-line, I might suggest to all or any.


Chic Furniture April 19, 2012 at 7:11 am

1.The post is written in very a good manner and it entails many useful information for me. I am happy to find your distinguished way of writing the post. Now you make it easy for me to understand and implement the concept.


properties dubai May 9, 2012 at 5:07 am

The problem is that some of these species, increases the risk. Since the decision to buy a house, think carefully study and explore more Loan rates and Home Loan Rate available.


Leave a Comment

{ 8 trackbacks }

Previous post:

Next post: