Considering Emotions vs. Logic when Buying a Home

I got into a conversation a few weeks ago about the idea of “stretching” to buy a nice home. The idea that was given to me was that it’s worth it to pay a little more than you might want to right now, in order to get a house that’s a bit out of your comfort zone financially.

The justification was that over time, your income should go up, while the mortgage payment will be fixed.  Thus, what seems like a big payment now based on what you see in an E-Mortgage calculator will seem much smaller later. Additionally, the idea went, if you buy a bigger home up front, you won’t have regrets later.

This isn’t the first time I’ve heard this. And just like I did that prior time, I argued against the notion of stretching once again.

Admittedly, I think that I might be in the minority when it comes to such a belief.  When I bought a condo way back in the day, I was in the majority of first-time buyers that simply didn’t fully understand all the nuances of mortgages, they payments that go along with them, and where they can fit into your overall finances.  Luckily, I ended up selling the thing for a small profit. Hooray! However, there are clearly some people who weren’t as lucky, and got burned.

My guess is that they didn’t run the numbers, didn’t have a household budget, and didn’t really plan enough for the payments. What I think many people with financial literacy issues do is just listen to what the lender tells them they could afford. Then, they spend that much. After that, they just try to figure out how to live on the rest.

Why? Good question. My guess is that for many people, a home is an overly emotional investment. Somehow, it’s looked at as worth spending a ton on because it’s a place you’re actually living. Or, there’s an assumption that a home is always a good investment. Or, perhaps, some people still think that the bigger the interest payment, the bigger the tax benefit, thus take out a big loan (NO!).

Whatever the case is, I think it’s important to separate emotions from the decision to buy a home, as much as realistically possible.  More importantly, think in terms of wants versus needs.

For example:

  • Is it truly necessary to buy a newly constructed home, or can you live in a 20 year old house?
  • Do you actually need that 4th bedroom, or can you make do with 3 bedrooms?
  • Does your lot have to have a huge yard, or can you live on less space?
  • Do you really need to have granite counter tops, or can standard counters work for now?

By thinking about wants vs. needs, we can truly be willing to understand that when buying a house, we’re making purchasing tradeoffs just like we do with other decisions. The difference is that the stakes are likely much higher here.

You can end up spending a ton more money to get something you want vs what you need, and end up having to work harder and for more years to make those extra payments on the wants versus the needs. Plus, as we’ve seen, homes aren’t always liquid assets, and they can actually decline in value quite a bit in the wrong circumstances.

Bottom line: While emotion and preferences of course have a place in the home purchasing process, I think it’s important to buy a home primarly based on logical needs, not emotional wants. To those who think that this takes away from the enjoyment of life in some way, I’ll come back by saying that it probably enhances the enjoyment of life, as you’ll have less pressure and more free time due to having to spend less money on the home.

My Questions for You:

Do you think it’s a good idea to stretch for a more expensive home, or do you think it’s best to find a home that fits your current financial situation very comfortably?

Do you also think that many people let emotions get in the way when buying a home, or do you think that a home is a much different type of purchase in which emotions are a big part of it?

Comments

  1. says

    I go back and forth on this since a home is a serious cash investment as well as a serious time investment. And while I hate to be the fool that says this time is different, it really does seem like this time is actually different–record low rates, terrible (for renters) price to rent ratios, etc.

    I know I’m going to have a pretty serious conflict with my girlfriend about this in the future. I would much prefer shop cheap. Really, really cheap, and just operate on the assumption that my first home could later be a first rental property. Ive found several homes selling in okay, but not great locations for a price that would make the monthly payment far lower than rental prices in areas far worse than the homes for sale.

    • Squirrelers says

      JT – I like your thinking, about how you’ll start. Seems to make sense, in light of deals right now as well as the notion that it’s hard to foresee where life will take you going forward. When younger, I think it makes sense to take that path of getting deal and perhaps even renting the place later.

  2. says

    You should definitely approach home buying the same way you approach another investment – but I think going completely investment crazy on a house is, well, crazy. The non-financial benefits (paint your own walls, change things you don’t like, hang pictures, sense of permanence) do mean something… and while you shouldn’t overvalue those things, giving up a little return you could get on some other investment might be worth it.

    That said, stretching is dangerous. Everyone assumes their salary will only go up, but often times it stagnates or drops, especially late in a career. If you are going to stretch it makes more sense to do it at the beginning of a career – your salary will most likely increase in real terms, versus if you are 45 and already making close to your peak. Still, I would stay relatively safe if you could – certainly don’t take every dollar the bank offers, haha.

    • Squirrelers says

      PKamp3 – I do actually agree with on some of the softer considerations in terms of a home as an investment but a home too. Of course, we both seem to agree that this doesn’t extend to stretching it.

  3. says

    These are some great points to really consider prior to purchasing. Emotions can be deceiving and they definitely lead you to the wrong house. The house could become a huge money pit if you’re not careful, a “fixer upper.” I would modestly estimate how much your income would be so you don’t over-extend your financial state.

    • Squirrelers says

      Jon – Yes, some people do need to be careful about choosing a money pit. Good point. That’s acutally another emotion that comes into play, the idea of getting a diamond in the rough. Those can actually cost a ton of money later.

  4. says

    It depends. Moving is a hassle and can be expensive. If you trade up later you have all the effort and expense of buying the next house.

    Do you plan to have more kids? House your in-laws? Start a business in the 4th bedroom? Will you plan on changing jobs or cities in the near future? Do you want to use the first home as a rental property when you move out?

    There is a lot to consider – plus this will be your home (not just a shelter), you need to be comfortable in it.

    • Squirrelers says

      Marie – yes, those factors absolutely need to be taken into account. We need to buy with our best guess of what our needs will be. To some degree, we should expect the unlikely (or a change of mind on certain things) and factor in flexibility when buying a home. I can agree with taht. Good points. Doing that without stretching it makes sense, so tradeoffs might have to made in the process.

  5. says

    I’m not a big fan of stretching to buy a home, but that’s what we had to do. We live in an expensive area on a single income and every house was a stretch. But, we felt very strongly that we wanted a house instead of a condo and that was a wise choice. We have live in our house for 15 years and we never had to move up to a bigger house. This would have cost a fortune to buy and sell the properties. The cost of living really does go up, while the mortgage stays the same. Our mortgage is now cheaper than the rent on our old apartment.

    One thing to keep in mind when buying a house is all of the bills you aren’t used to paying when you rent. The homeowner’s insurance, property tax, trash collection and water bill really add up. It’s definitely worth it if you are going to stay in one place.

    • Squirrelers says

      Bret – If someone lives in a high cost of living area, then comfortable options can be limited. My area is definitely more expensive than the national average in terms of cost of living, so tradeoffs have to be made.

  6. says

    It depends on your belief of your income stream. If you believe it’s going up over the next 5-10 years, then stretch away, b/c 5 years from now, it’ll seem so small. This is generally the case for younger folks.

    I cannot believe how cheap my mortgage is for a rental property that was purchased 9 years ago compared to the rent nowadays. Inflation!

    • Squirrelers says

      Sam – if one can truly say that income will be much higher, then that might be different. I think that most buyers might not truly fit into that category. I agree though that when younger this might be the case. For example, somebody who was about to get a graduate degree might see a big spike up in income in the coming years.

  7. says

    I think people let their emotions get way too involved. I think it’s a mistake to stretch to buy a home. Unexpected expenses always come up and if a mortgage is already a stretch, those owners are setting themselves up for some major financial stress. -Sydney

    • Squirrelers says

      Sydney – I’m a fan of most people buying within their current means, and accounting for unexpected financial issues in the process. When taking on a committment like a mortgage, I think it’s best to err on the side of conservatism. We see what happened to many people in recent years!

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