When I went to the bank to get my home loan, I was approved to borrow a pretty good amount of money. It was all thanks to my income, good credit, and the fact that I had saved a down payment. But in the end I bought a house for far less than the maximum amount the bank had promised me.
There are a couple of reasons why I did this.
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Buying less home than I could afford made financial sense for me
While a home can be a financial investment, that’s not how I see my home. I will live in my house for as long as possible and not sell it to make a profit or sell it when I retire to replenish my savings account. So while my house may increase in value as the property value increases and I am acquiring equity when I repay my loan, I will not benefit directly from this financial appreciation for a long time, if at all.
Since my home is not an investment, I wanted to make sure I had lots of money to invest in other assets that want help me to become financially independent one day. I didn’t want to spend so much money on a mortgage payment that it would be difficult for me to exhaust my retirement accounts, invest in taxable brokerage accounts, or save up for other large purchases I might want to make over time.
Nor did I want to lock myself into the high mortgage payments that would have been tied to the loan the bank had offered me. Although I could afford it based on my current income, there is no telling when my income could possibly decrease if I wanted to change jobs, if the economic situation meant that I lost work or if I cut back and instead spend more time with mine Family wanted to spend so much to work.
I knew if I committed to a really large mortgage payment I would end up in a situation where I would could not Make the decision to earn less income and worry about a cut in my salary all the time.
Instead of causing myself a lot of financial stress in the future or risking not being able to do other things with my money, I took out a much smaller mortgage than the bank had offered – and therefore bought less home than I could afford to buy. In fact, my husband and I made sure that the house we bought was affordable even if only one of us works. That way, if something happened to any of our incomes, we wouldn’t be at risk of foreclosure.
Trusting the mortgage lender to decide how much to borrow can be a big mistake because their interest is to lend as much as possible without increasing the risk of default. You are only looking at your debt to decide how much it is, not your other life goals. You owe it to yourself to look at the big picture and make sure you don’t commit to a home payment that will cause you financial problems in the long run.