3 delusions for buying a home

Homeownership makes sense if it’s part of your overall plan, not if it’s your whole plan

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People can convince themselves of anything. Nothing is a better example of this than the folks who squeeze themselves into too-big homes and then have no money to save.

If you’ve used the excuse “my mortgage is a forced retirement savings plan,” it’s a sign that you’re delusional. While your house will likely appreciate over time, and that appreciation can be cashed out later on, you’re going to pay a whopping amount of interest on that mortgage. The whole gain isn’t “profit.” Nope. You’ve got to factor in the interest and carrying costs. Keep in mind you will have to sell the house to realize your profit. Sure, you think you’ll want to downsize now, but what about when all the grandkids start visiting over the summer?

Then there’s the “it’s better to buy than pay rent and someone else’s mortgage.” Home ownership is nothing like renting and if you go into the process with this delusion, you won’t be prepared for the higher utilities, maintenance costs, and myriad other things that can eat into your savings.

And my favourite delusion of all: “The bank wouldn’t lend me more money than I could afford to pay back!” Ha! If you haven’t heard me yell this yet, listen up: The bank is not your friend. The bank exists to make money, and the more interest you pay the more they make. They could care less if they strap your budget tighter than a nun’s knees. And even after they’ve sold you too much mortgage for your cash flow, they’ll keep telling you what an idiot you are for not saving for your retirement.

Homeownership isn’t something you do at the expense of the rest of your financial plan. If you can’t pay for your home and save at the same time, you’ve bought too much home!

6 comments on “3 delusions for buying a home

  1. I like this article, Gail. More expensive houses have higher costs, including taxes. That's a big chunk of change. Renting is definitely cheaper, I think, especially when the rental is much smaller than the purchased home.

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  2. I rent. I'm 39, and do not own a home. I've had people tell me I'm stupid because I'm not 'investing in my future' by owning a house.
    I work full time at a job where I'm only guaranteed 16 hours a month. I make very good money. Very good. I save. I take vacations. I have enough for a down payment. BUT: I'm not full time, therefore no medical insurance beyond Alberta Health Care, and not guaranteed more than those 16 hours a month (which I've never worked – always way more).
    I live in a teeny place, in a very good house, quiet, clean, adults, landlord leaves us alone and hasn't upped the rent in 3 years. I pay $460, all inclusive.
    Get me a mortgage for $460 a month and no bills, and I'd move in a heartbeat (and not in to a 'fixer upper' either).
    If I bought a house, I wouldn't be able to save, and I have to. I'm single, work too much, volunteer, have hobbies – I'm busy. I don't always have full time work, and then my savings come in to play. I can't take that chance owning a home when I'm not full time. I adore my job and will stay to keep seniority so I can get full time, so until then, I will rent.
    This article is awesome. So many have told me I'm nuts or even stupid for not owning a home when (to them) I can clearly afford it. Sure I could, but then I'd have to give up a couple of hobbies, travel far less, and not be able to save.
    This article was sorely needed. Thank you!

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  3. Gail, you are such a wonderful deliverer of truth! And make me laugh too?! (strapped tighter than a nun's knees! LOL) I totally agree that home ownership is waaay over-rated. And your article doesn't even touch on your recommended minimum 3% of value for annual maintenance & repairs.

    I'm just coming out of a second marriage and when the house sells I expect to have about $20,000 in pocket, not enough for a good downpayment to enable me to pay off another mortgage within 15 years (at retirement) on even a little condo. I figure half will go in my rsp and the other half in a tfsa for an emergency fund. Renting will allow me to sock away $ into my rsp and still have a life. Right now, I'm in a little apartment with a fantastic ocean view, my kids are all grown and gone and the future is bright even without my name on a property title!

    Thanks so much Gail for spreading the word that home ownership isn't suitable for everyone, more people need to hear this message.

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  4. It's really about buying what you need. We always discuss wether we should buy a bigger home for my 5 person family …. But then again my mortgage is paid off, at 41 years old. Yes there are repairs, we lost the furnace this year, but we own it, so my point is if you can !!!!!!!!!!! Make to the end of the mortgage then your free of one less expense in our lives. I agree if you buy bigger than u can afford, then this can be stressing.

    My 2 cents (Canadian that is)

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  5. People have this weird "bigger is better" idea that I just can't get on board with. The heating costs ALONE in a large house are enough to make a person cry for mercy! Also, you'd better love cleaning, because the bigger the house, the more hours spent cleaning. I never loved cleaning so much as when I lived in 360sq.ft. and HAD to keep things clean…but it only took me a half hour at most. Now we live in over 2,000 sq. ft. and by the time I get finished the last room, the room where I started is ready to be cleaned again (and my little ones aren't old enough to cut that time down…when they help, it actually takes LONGER).

    When we finally are TRULY ready to buy (my parents own this house, but we're paying all the bills except the mortgage itself…and those bills still amount to a lot) we will be HAPPILY downsizing A LOT. Like to 800sq. ft. or less.

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  6. I guess it is a belief held with strong conviction despite superior evidence to the contrary.

    Reply

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