Imagine your dream home. What does that picture look like? Many of us dream big when we fantasize about our dream home, but is it really worth it?
Robert Brown’s next chapter in his book, Wealthing like Rabbits, is a reality check on how interest will work against us when we borrow outside of what we need. He tells the story of two brothers, Mario and Luigi (no, we’re not kidding), who each buy a home at the same time.
Luigi’s home costs $350K and his brother with the more expensive-taste, Mario, buys a home that costs $525K. They both put down the exact same amount for the down payment.
You would think that means that Mario is spending $175,000 more dollars than his brother, but Robert Brown explains why we would be mistaken.
Between the mortgage interest, mortgage default insurance, and even MORE factors, Brown does the math for us to tell us that Mario will end up spending $400,000 more than his brother. That’s a jaw-dropping number that many of us would be unwilling to spend.
How much is TOO much?
Getting pre-approved for a large mortgage is a great reflection on your credit score and stability, but the pre-approval rate is not necessarily what you SHOULD spend.
There are 4 important things to consider before making one of the most important financial decisions of your life:
- What do you need? Does your lifestyle require you to have five bedrooms and three bathrooms, or will you and your family be comfortable in three bedrooms and sharing two bathrooms? Figure out how much space is too much, and whether the space fits your checklist.
- Is now the right time? Take a look into the future and ask yourself where you want to be in five years. If you picture yourself in a different city, province, or country, reconsider if buying a home where you are is the best option for you.
- Enough in your emergency fund? Don’t let your down payment leave your emergency fund Becoming a homeowner means you are now responsible for just about anything that goes wrong. The author tells us stories of broken windows and furnaces. Make sure you’re prepared.
- Have you considered all the costs? Getting a mortgage doesn’t just mean you’re paying for the house and saving a deposit. Often, you’re going to have lawyer fees, realtor fees, moving fees, and more. Make sure you’re budgeting for all of the costs.
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