There’s a lot of talk in the Financial Independence Retire Early community regarding buying a new home, especially if you’re going to need to take out a mortgage.
Some believe you shouldn’t purchase a home until you can pay for it in cash. But most people don’t have $200,000-$300,000 laying around to flash in the face of the mortgage lender as you walk out the door laughing, knowing that they won’t ever see a cent of interest from you.
So, what do you do when you want both? A nice house AND the pursuit of financial independence? You get creative, that’s what!
Is a Nice House Really a Priority?
Decide if You Really Need to Move
Are you currently renting? Then compare the cost of renting vs buying.
Is your fancy new house a want or a need? Is your current home splitting at the seams trying to contain your growing family or do you just like the idea of having a brand-spanking new crib to show off to your friends?
If it’s the latter, then skip it. In order to pursue financial independence, you’re going to need to practice a bit of restraint. And spending $300,000 dollars just because it’s a Tuesday doesn’t constitute restraint.
However, if you are truly uncomfortable in your current home–then move! By all means, move. Your home is the place where you go to rest and recover from a long day out in the real world. You don’t want to come home to a place that stresses you out. Financial independence is important, but it takes years for most. You don’t want to spend all those years miserable.
Have a Little Patience
Great, so you’ve decided that your new home is a need, not a want.
Have you ever heard the saying that goes something like “good things come to those who wait?” You have? Well, it applies here.
The housing market changes every day. Homes go on and off the market every minute–nay–SECOND. Just because you don’t see a nice house that fits your needs today, doesn’t mean that in a couple weeks’ time your dream home, falling neatly inside your ideal budget, won’t be there ripe for the picking. If you’ve lived in your home this long, try to make it work until that perfect house becomes available. Don’t stretch your budget just because you’re not willing to wait.
Think Outside the Box
There’s more than one way to buy a house. Have you ever seen those homes that are up for sheriff’s sale? Foreclosure? If you’re looking to save some big money on a house, look here.
Now, buying a home this way doesn’t come without risks. Sheriff’s sales and foreclosures mean that the person living there before was not paying their way. Understandably, one could assume they were also not taking proper care of the home. I’ve even heard of people trashing the place prior to leaving, just to be spiteful. Surely, things don’t go this way every time–but you need to be aware that it happens.
Sometimes, these sales mean the property comes as is–and there are no prior inspections allowed. And they usually involve some sort of auction, so you may end up getting outbid by someone else looking for a great deal on a home. Basically, sheriff’s sales and foreclosures are just not an easy road to go.
But–if you’re willing to put in the time, effort, and research before you dive into purchasing a home this way, you could come out on top. It’s happened before, and to many people.
You just really, really need to make sure you know what you’re doing when you show up at that auction. Talk to some people who have bought at these type of sales before. Do some research online. Cover all your bases PRIOR to getting tangled up in the process or you may pay the price.
Get Your Hands Dirty
A little dirt never hurt, right? Basically what I’m getting at here is that you have the ability to create a beautiful home with your own two hands. Consider the option of buying a fixer-upper that has all your basic needs–space, location, etc. Then, put on some gloves, find a friend or two, and make your new house a home!
You may be saying something like, “Well I’m not handy! I can’t do that!”. Anyone can be handy, with a little bit of willingness to learn. There are countless resources nowadays that can help you create the home of your dreams–books, TV shows, DVDs, YouTube videos. Many of these resources are free, especially if you visit places like the library to find them.
It may take you longer, and you may smash a few toes and fingernails in the process–but think of how proud you’ll be when you’re finished. And how much money you’ll have saved!
Secondary to this option is hiring a family member or friend to do the work for you. This is the route we took when we needed work done on our current home. It seems like everyone knows someone who is handy, and most people don’t pass up the opportunity to make a few extra bucks over a weekend or two.
Offer to pay them what you can afford to pay them, throw in some beer and dinner to sweeten the deal–et voila! You have a handyman. And he won’t steal your silverware on his way out.
Don’t Live Beyond Your Means
I think the most important thing that you can do when considering a new home while pursuing financial independence is this: don’t live beyond your means. Just buy the house that is good enough for you, and don’t worry about having the biggest house on the block. The people who care about that kind of stuff aren’t people you need to concern yourself with anyway.
Let me give you an example. My husband and I are currently building a home because we outgrew the home we are currently in as soon as we had twin boys. Our house passes the bursting at the seams test–we are genuinely uncomfortable here. We aren’t going to have the cash to pay for the house outright because we are regular people. We haven’t been saving since the age of 10 and we aren’t trillionaires. So, we are taking out a mortgage.
So, what have we done? We have ceased all extraneous spending as much as possible in order to pad our down-payment as best we can. We made about 5 spreadsheets to prove that we could afford the house, with some excess money left over, before we pulled the trigger and signed the papers. We implemented a budget system. We made plans to throw all the extra money we can find at the mortgage in order to pay it off as soon as possible. And most importantly, we skipped all the unneeded “extras” that the home builder offered while we were choosing our options.
Did you know that you can get a humidifier for your whole house? Yep, just build right in there into your HVAC system. Humidifies the whole house for you. They say it’s good for your flooring. I say how did we survive hundreds of years living in structures without a whole home humidifier?
Well, I’m about to find out. Because we opted the heck out of that. I ain't no sucker!
The point I’m trying to make is this: it can be done. You can live in a comfortable, beautiful home and still pursue financial independence. You don’t have to live in an RV or a shack like some of the hard-core members of the FIRE movement. And more power to them, as long as they are happy.
But if that doesn’t work for you, and it sure doesn’t for me, then don’t feel guilty about wanting to have a nice house that you don’t have to put a parking brake on. You deserve it.
Michael launched Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.