If you’re like me and you’re on a mission to retire early, you need to know that the choices you make always affect your timeframe for when you’ll reach early retirement. It can shorten how long it is until you reach your goal or it can push it back further and further into the future. How much of a house you buy will be one of the most crucial financial decisions you’ll make.
Like everything in the world, there are many different opinions when it comes to how much you should spend on housing. There are many people who think that their house is an investment and it’s ok if they have a ridiculous mortgage payment on an extravagant home. On the opposite end of the spectrum, there’s a large movement of individuals who lean towards keeping there expenses down to nothing which has in turn created a housing market for “tiny” houses. Personally, I pretty much stand right in the middle. I like to keep my expenses low but with a wife, 2 kids, and 2 dogs I can’t really force them to spend the rest of their lives in 300 square foot house.
I’ve never really liked to think of my house as an investment but I can acknowledge the fact that houses do appreciate over time. At 3% appreciation over 30 years, a $235,000 house becomes worth $485,000. Not too shabby, but it isn’t guaranteed and shouldn’t be relied on.
How Much Should I Spend On A House?
When figuring out how much you want to spend on a house, you want to avoid any advice from the banks. Banks will allow you buy a house where the mortgage will be around 50% of your take home pay (and they wonder why there was a housing crisis). If you’re spending 50% of your monthly take home pay on a house, you’re house poor ladies and gentlemen. Personally, I’d like to see everyone keep their house payment around 25% of their take home pay when financed with a fixed rate 15 year mortgage. At 25%, you have the ability to buy a decent house, pay off that house early, invest a lot of money, and have a little bit of a life.
Wouldn’t it be great if you owned a home that you could afford AND pay off early? Doing it this way will allow you to not only invest more money in retirement but you’ll also have a possible appreciating asset ready to sell if you desire. If it doesn’t appreciate? You won’t have to worry about it because you don’t owe a dime on it. I’ve never seen a bank foreclose on a house that doesn’t have a mortgage!
Most of house poor America is barely able to pay their mortgage because they received terrible advice from somewhere and significantly overpaid. They invest less than 5% of their income, drive cars with car payments, eat out constantly, and spend every dime they receive. Please don’t be like everyone else! Don’t mess up the biggest financial decision you’ll make by over paying for a house. It’s easy to get house fever while you’re walking around with a real estate agent. Be patient, be disciplined, and remember to sleep on any decision you’re thinking about. Your financial freedom is depending on it!
Remember, 25% of your take home pay on a fixed rate, 15 year mortgage!
**If you like talking about Money, Paying Off Debt, Building Your Net Worth and Retiring Early…This is the place for you! Subscribe to receive emails of new blog posts, news, tips, and exclusive content!!!