I’ve moved five times since college. With each move, I have sought the advice of a local realtor. They have provided important insights into neighborhoods, housing trends, and home prices. And each time, they have taken a genuine self-interest in my family’s well-being. In fact, I’m still friends with almost all of them.
Our interaction typically begins with a series of questions: What are you looking for in a home? Are there any specific locations you have in mind? Are you pre-approved for a loan? How much are you looking to spend?
With this information, a realtor is prepared to make recommendations and offer advice—usually based on the dollar amount a buyer wants to spend.
Too often in this scenario, “What can you afford?” replaces “What do you actually need?” as the starting point for most home buyers. Rarely do people begin the home buying experience with a list of needs alone. Instead, they come armed with a pre-approved dollar amount, set by the bank, of how much they can afford to pay each month. This rationale has gotten us into deep over-housing problems, on both a macro and micro-economic level.
The housing market today in the USA is pushing prices to an all-time high. If you are in the market to purchase a home, I want to offer you the most important piece of home buying advice you’ll ever hear:
Buy only the home you need, not the house you can afford.
Too often, when people begin the home buying experience, the mantra of our society comes calling, “buy as much and as big as possible.” It seems, whatever dollar amount the financial institution has approved to spend on a home becomes the price range they begin searching in—usually choosing a home at the upper limit of the range.
For example, if based on income, a buyer is pre-approved for a $350,000 loan, most buyers begin searching for the biggest house they can find for exactly $350,000. This thinking can even be encouraged by the realtor and the financial institution. And why not? The larger the sale, the greater their profit.
Buyers soon create a list of “wants” for their new home while “actual need” is quickly erased from the formula. Once you tour a $350,000 home, it’s really difficult to be content buying a $250,000 one.
In purchasing homes, we are told repeatedly (in both subtle and not so subtle ways) that “bigger” and “more” is better. As a result, the average American home has tripled in size in the last 50 years—and they only continue to expand. With little regard for the negative consequences, buyers continue to purchase bigger and bigger homes, whatever size their income allows.
But the impact of this thinking has detrimental effects on our well-being. We typically use only 40% of our living space with any regularity. Meanwhile, the increased debt contributes to mental and emotional distress. And the excess space carries additional financial costs—whether we are using the square footage or not.
More is not always better. There are actually some fabulous benefits to living in a smaller home. A smaller home is easier to maintain, less expensive, assumes less financial risk, results in less environmental impact, and frees up our resources to pursue other passions in life.
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.
Buying a home is a very personal decision that weighs a large number of factors. And only you know all the variables that come into play when making that decision.
But too often, the most important piece of home buying advice is the one we never hear:
Buy only the home you need, not the house you can afford.
David @ Filled With Money says
I had no clue that people willy nilly actually uses the almost entire mortgage that the bank approves them for. I would be scared to take on that amount of leverage but people don’t mind the additional risk and levers up!
Buying a house you need is an essential topic that needs to be taught in school. How much we want is oftentimes very wasteful.
Patty says
I love when you write about home ownership and minimalism. This is right on. My husband and I live in a 1500 sq ft home with our German Shepherd. We have lived here for over 20 years. I see coworkers and some friends building or moving into these humongous 4000-6500 sq foot homes and just cringe. I spend most of my time in my home office, the bedroom sleeping and occasionally the living room if I watch any TV which I do rarely. So I don’t even use my 1500 sq ft house fully. I like our small deck and bigger treed lot to listen to the birds and watch wildlife. I don’t envy any cookie cutter home owner where you are on top of your neighbor next door. Nor the big sq footage and all the upkeep and utility bills. My house has been paid off for years now. I can travel anywhere I want. I am just so glad I got past the “keep up with the Joneses” and “bigger house is higher status” phase I went through. Love your articles that just keeps confirming what I think as well. Most of it common sense. Thanks Joshua.
Steveark says
We lived in a smaller house that we kept adding on to as our family grew. Eventually we had four bedrooms and four full bathrooms when we had three teenagers under the roof. At that age you want some space for both their sanity and yours. Once it’s paid off completely there is very little downside to the extra space. With zoned heating and cooling you don’t have high utilities. We have converted one bedroom into two walk-in closets and another into a reading room. It’s nice having the space.
dan says
Obviously, the realtor needs to know what you can afford, and often the biggest criteria is the school district which is a horrible situation which needs to change.
Most people are going to want each child to have their own bedroom if possible, unless it is a large family when that is not affordable.
Now with computers, you don’t need records, DVDs, books, and many other items. Moreover, when you need something, you can order it on amazon so it is less important to have a large inventory of items. Instead of photo albums, you can store many photos in the cloud. Also hobbies of the past, e.g. stamp collecting and the like are no longer needed for entertainment or education, because of the internet.
I know this is not a crowd pleaser for a minimalist mindset, however if a person can afford a storage unit to rent, and keeps it small, and goes through it once a year, a storage unit can be a great way of de-cluttering a home.
A generous size kitchen and master bathroom can enhance day to day life.
Ellsworth says
Amen brother! Amen!
Jessica Martin says
I am a real estate broker and regular reader. I love this article and am sharing it on my own blog! I live in an 800 square foot apartment in a multifamily home that my husband and I own. People are always surprised that we live where we do considering my career. But our small space allows us to both be self-employed, do work we love, vacation several times a year and not worry about money. I tell buyer clients all them time to be careful of becoming house-poor. In the current real estate market, it’s a fantastic time to sell, but a terrible time to buy. Thank you for your insight!
David scott says
Great article! I have been mulling the topic of selling. This was such a needed reminder, I keep hearing “your house has gone up in value and you should sell”, “you don’t want to miss out on the profit”.
I don’t need a bigger house, I do have very difficult neighbors, shockingly difficult, but I am not going to move simply to get away from a minor problem, into potential major one with a bigger home and a bigger mortgage. Would love a bigger lawn area, but then it dawned on me, “You have a large park done the street!” I really needed to hear this article. Thank you!
Peggy says
So many years ago, when my kids were pre-school and elementary age, I had a dear friend with 4 kids and a husband (same as me). We live in a 2000sq ft home. She lived in a 2 bedroom 1000 sq ft home. Her husband was in the military and they finally got into a home on the base. It was huge, 5 bedroom 2500 sq ft. home. I’ll always remember her comment to me after living there a year. She said, they were closer and got a long better when they lived in the smaller home. The larger one was more work and with more space came more separation, and less need for cooperation – at least that’s what the kids thought. They actually fought more in the larger space. It just stuck with me.
Now, my husband and I live in the same home and the kids are gone. It’s a 2 story home with the downstairs around 900 sq ft. This all we really need.
Judy says
We have friends who recently purchased a 5,000 square foot house. Yes—- it beautiful—- still I couldn’t imagine maintaining that. She has two kitchens and a handful of bathrooms. I can’t imagine the expense either. To heat/cool —- taxes. No thank you!
DJ says
We bought our current home, a 3-bedroom 2-1/2-bath 3-story townhome in 1982 when our 1st of two children was 1 year old. We raised both kids here, and they’re gone. So now it’s just my wife and I. I still work 40 hours a week, and when I’m home (evenings and weekends) we just hang out in our bedroom most of the time. I’ve got a recliner in there and my wife likes to lay on our bed and watch the big flat screen. We don’t use much of our home anymore, so we’d like to downsize to a 1-or-2-bedroom 1-bath 1-level home, maybe a single-wide mobile home. I’m considering a used RV or 5th wheel with at least two slides, as nice used ones are available around here for $10-15K. If I can find some accessible cheap land I could park it there and easily and cheaply go off gird.