How Much House Can I Afford? (Part 2 of 2)

In Part 1, we talked about the financial half of deciding how much house you can afford.  But how happy you are after buying the house depends on how well you balance the financial of your decision with the psychological ones.

Is More Really Better?

Hugh Chou writes an excellent article, "How Much Do You Really Need to Buy?" based on the book The Millionaire Next Door, disputing the contention that more is better. 

He contends that sometimes people who live in expensive neighborhoods aren't always the ones with the most money --- they're just the ones who spend the most. 

Sometimes More is Just More

In fact, larger homes in better neighborhoods take more furniture to fill, and the level of furniture you get needs to fit the house.  And so does the landscaping, and then the car, and the clothing, and... no?

There is nothing wrong with consciously making material status your goal and understanding the ramifications, but it's a slippery slope for those who max out their credit and get a larger mortgage than they'd normally be able to afford.  

But Don't More Expensive Houses Come With Better Schools? 

The most surprising, though logical, argument Hugh makes is that people fall into the trap of buying a house more expensive than they need because they want better schools. 

While ensuring a good education for your children is both important and honorable, he suggests that you may be able to save money by getting a home in a less expensive neighborhood and sending your kids to private schools.

Financial Strain Leads to Emotional Strain 

Buying a home can be an investment decision with significant benefits but most of the times it's about your lifestyle: having a space to call your own, ensuring a stable home for you and your family, making a life.  

But your home needs to support and enhance your lifestyle, not stretch your finances and cause emotional stress.  The fact is that most couples argue over money and I've seen what buying more home than you need can do first hand when I was young.

Bottom line: Just because you can afford it doesn't mean you need to buy the biggest house your lender thinks you can afford.