I remember spending many a Saturday driving around looking for just the right house in the perfect neighborhood when my wife and I were ready to buy our first home. It was an exciting time. We were starting our family and were looking forward to “having our own place.”
House Rich? Or House Poor?
Buying and owning a house will probably be one of the biggest monetary decisions you make in life and I want to cover a number of issues related to home ownership. These are big-picture decisions that, if made wisely, will lead to financial freedom — but if disregarded, can lead to major money headaches.
I recently visited with an attorney and his wife who were having difficulties due to money issues in their marriage. Their problems were in some ways different from those of the average American couple, since he earned a solid six-figure income and they lived in a $1.5 million dollar home. Yet in other ways, they were struggling with exactly the same challenges that so many Americans face. They had purchased more home than they could afford, and were having a hard time making room for other important priorities.
While it may be difficult to feel sorry for this couple, their situation highlights one of the biggest causes of financial pressure today. People do all they can to buy as much house as possible, but find they’re house rich, to the detriment of the other goals they have in life. They’re unable to afford a good Catholic education for their children; they forego important insurance needs; they certainly aren’t saving or tithing; and they often find themselves using credit cards to meet their other needs.
Trapped in the American Dream
In our search for the American Dream, we can let our eyes and emotions run way ahead of our available resources. The greatest advice I can offer in this chapter is: Make sure you don’t fall into the trap of buying more house than you can afford. In Luke 14:28–29, Jesus tells us, “For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation, and is not able to finish, all who see it begin to mock him, saying, ‘this man began to build, and was not able to finish.’”
You’ll recall that my guideline budget suggests that all housing costs (including payments, property taxes, insurance, utilities, telephone, gardening, and improvements) be limited to about 30 percent of your gross income. This can be a real challenge with the current cost of housing, especially at lower income levels. It’s not uncommon for me to counsel folks for whom total housing costs are between 40 to 50 percent of their gross income. While the 30 percent figure is only a guideline, and there is room for some flexibility, when you get to the 40 to 50 percent range, it becomes virtually impossible to balance out your other priorities appropriately. Something has to give.
Keeping your housing costs within a level you can truly afford will probably mean buying less house than you are dreaming of. My parents started very simple and often shared the story of renting their first “home.” At the time, my oldest brother was a toddler and my oldest sister was a newborn. The house had one bedroom and my brother slept in the bedroom with my parents, while my sister slept in a basket on top of the washing machine! My parents understood the importance of keeping overall housing costs within their means. Too many young people want to start where their parents have ended up, rather than where their parents started.
Family Comes First
Another example comes to mind. Some neighbors of ours were considering whether to move to a larger home. They were in a position to afford it, but had other priorities they felt were more important. For one, they wanted to build family togetherness by going on more frequent vacations and outings. So they talked the two options over with their children. Would the kids rather live in a bigger home, or would they prefer to take nicer vacations as a family and be able to pursue additional hobbies that they wouldn’t be able to afford if they moved to a more expensive house? To the delight of the parents, the kids chose to stay put and spend the extra money on more opportunities for the family to do things together.
Don’t get me wrong. Housing has proven to be a sound investment over a long period of time, and there’s no reason to think that over the long run, it won’t continue to be a good investment and perhaps one of your largest assets. But if you fall into the trap of buying as much as you can, especially with the more risky types of loans available today, you can expect that it will create a good deal of tension in the home — and that’s not good for the family.
What should you do if you already own a home that’s sapping your checkbook dry? I suggest you take a hard look at your budget and consider whether you’ll be in a position to meet your other obligations adequately over the next five years or so. Maybe you’re confident that your income will increase sufficiently over the next few years to bring your situation back into balance. But be realistic about it. If you can’t see how a proper balance will be achieved, the healthiest decision may be to downsize.
Phil Lenahan is Director of Finance at Catholic Answers and author of Catholic Answers’ Guide to Family Finances. If you have a question you would like Phil to address, contact him at [email protected].
