What does “value” mean to you? To me, the word “value” means priceless—things money cannot buy.
The problem with the American mentality is that we put such importance on material things and not on things that are valuable.
I cringe when I read inspirational or financial books that encourage people to strive to buy their “dream home.” What kind of message does that send? That people can only be as happy as the size of the home they live in? That they are better parents for providing a bigger home for their children?
The economic and real estate collapse we’ve recently endured should deliver a big message for those people striving to buy their “dream home.” I’m going to tell you: Do not buy your dream home. Learn what you can afford on paper, and then buy a home for half that price.
I know…you’re thinking, “WHAT?”
A client account I recently read about out of Austin, Texas, is a perfect example. After a couple finished school together in 2007, they decided to buy their first home. They went online to a dozen different mortgage calculators, and sat down with a mortgage broker. The mortgage calculators asked about their income and any debt they had.
They had no debt except car payments, so the average mortgage calculator said they could afford a $450,000 home. They looked online and found some very beautiful homes in that price range around the Austin area. They were excited to see they’d be able to buy a three-thousand square-foot home, with a bonus room, office, four or five bedrooms, island kitchen with granite counter tops and possibly a swimming pool.
They said it was like a giant carrot was dangling in front of them. The couple spent their weekends driving by these homes, and imagined living in one of them very soon. But one thing puzzled them. Each time they “crunched some numbers” and saw what their new budget would be, they never had enough money (or they were stretching their budget too thin). They asked each other, “Why do these mortgage calculators tell us we can afford a $450,000 home when our own calculator tells us otherwise?”
Mortgage calculators don’t ask you about the valuable and priceless things you want and need to do for your family. If you buy a home at the maximum you qualify for (which most Canadians do), then you’ll have very little left for the most valuable things in life, or you’ll pay for the valuable things anyway and end up in credit card debt.