My wife and I recently went under contract for what is our “forever home.” The home we expect to spend the next two decades in as our 2 young children grow up, go through their formative years and eventually leave the nest. There are very few financial decisions in life that carry so much weight and value as the purchase of a home. And that decision process is what we are going to take a look at in this week’s Inside Look at Building Towards Wealth.
Can we begin by talking about the craziness of making such a large decision based on a 30-minute walkthrough? Are we really saying that 30 minutes is enough to make a 30-year decision?
Buying a home is largely an emotionally driven decision and that is why it is even more important to plan out the process thoroughly and set parameters for your decision-making process.
In thinking about our situation this ended up being the culmination of a five-year process. As some of you know, we currently own a three-unit building in the Avondale neighborhood in Chicago. We talk about this process in my post, so you want to be a landlord.
We spent 16 months looking for that property with several bids that were lost. It was largely a by-the-numbers decision where we rigorously thought about the ROI on the purchase of that building.
In contrast, this time around we ended up with the very first house we walked through.
To be quite honest, it took both of us by surprise. Our expectation was that we would hope to have a house under contract by May of 2022 and that we had to have it done by early 2023. We created a checklist that was important to both of us in a home from location to outdoor space, to number 1 on my wife’s list, closet space. It just so happened that the very first one we walked through checked off a lot of those boxes.
In thinking about this home purchase, we were not going into this viewing our home as an investment. We view our home as a utility cost. We must live somewhere. We are going to put money into it. It is going to contain the stories of the lives of our children as they grow up. It has an emotional value beyond the economic value.
We are not blind to the economics of our situation, but it is not driving the decision like it was for us several years ago. I also don’t think that buying a house in this current market is a bad idea. As I talked about in April, I gave three reasons why we are probably not in a housing bubble.
We did spend quite a period of time figuring out what would be affordable for us. Given our income and nest egg. We made a decision that we were not going to exceed the conventional loan limits.
With that loan amount in mind, plus our down payment, plus still needing some money to buy furniture for the new home and to continue having an emergency fund, it helped us set a budget for the home that we could afford.
Could we have afforded a higher monthly payment, and bought a more expensive house? The answer is yes, but we had to ask ourselves, when is enough enough? That comes with a tighter monthly budget in addition to paying the higher interest rate of a Jumbo mortgage loan. We prefer the idea of being wealthy and continuing to save for the future as opposed to appearing rich. We made our decision based with those principles in mind.
One of the great things about having a long-term plan that was enacted five years ago was that we always knew that sometime between 2020 and 2023 we were going to buy our forever home.
Like many people, the pandemic, made us rethink our wants and needs from a space perspective. We probably would have started looking earlier this year for our new home if it had been a more normal real estate market.
What we were not willing to do was to deal with the craziness of the home market at that time. With both of us working, me running a business, and us having two small children at home, the ability to drop everything at a moment’s notice to quickly tour a house and get into a competitive bidding situation with eight other people did not seem like an attractive option, nor did we feel that it was going to help with our sanity.
We made the decision to wait it out. This possibly cost us money, but our plan is always led by the principle that happiness >>>> money.
We also worked in conjunction with our real estate professional and listened to the specialist. He helped us understand when the market was beginning to calm down. We also learned, somewhat to our surprise, that August is one of the slowest months for the real estate market and that you can occasionally do better in a less crowded market.
We used our long-time horizon and the knowledge of the professionals that we work with to help us know when to start participating in the housing market.
My wife and I know that this still could all go wrong, that we move into this home and we don’t like it, or something changes in our lives and this is not the home that we end in forever.
This could end up being a poor financial decision when it is all said and done. We know it is unlikely to be a very good one, we just need it not to be a bad one.
At the same time, we know that because we followed our principles, we’re doing this with the right intentions and that we did not violate the guidelines we set for ourselves, that our financial plan is durable enough to deal with just about any outcome ahead of us.
I hope that relating the story of our home buying process has given you some insight into our decision-making process and can help shed some light or give you some insight into your own.
Have a great day!