Stories
I worked with Jeff for seven years. He had a thriving construction company. But he was burned out. I don’t think I’d ever seen anyone hold so many irons in the fire. I knew he was losing sleep and he knew there had to be another way to live. We discussed numerous plan options.
The absolutes were: close business, move to a less expensive area, purchase a house, settle down and figure the next phase of life.
What came up during this process was that Jeff was drawn to very large, very expensive homes despite house shopping in a state that was significantly less expensive than the Bay Area. (SF-Bay Area, California)
Jeff shopped homes. I shopped numbers.
If you’re going to borrow money it’s best to know how much you’re paying for that money, right? In the process of applying for a loan, or creating a budget for that matter, we think of the number we can afford. But it’s also good to know how much of the money goes “poof” out the door, over the term of the loan.
From a realtor's perspective it’s all good because homes are assets and go up in value. (Usually). From the perspective of life-style, in terms of manifesting your desired life-stlye, it’s best to weigh in the cost of the number.
The success I had with Jeff is I talked him down from a 1.5 million dollar home to a 1 million dollar home. Both homes were substantial and in very nice neighborhoods
This is a general picture:
$1,500,000 - 20% down payment = $1,200,0000 borrowed
Over the life of a 30 year loan:
Interest paid out is $988,882 (APR 4.675%)
Interest & principal paid out $2,188,882.
Somebody has to earn that money.
If you’re 45 and buying this house you’re committing to earning $80,000 a year to cover just your house payment. But then you have college, kids sports, car insurance, auto purchases, clothing, medical insurance, groceries, … maintenance, repairs and the list goes on.
You will have to earn $200,000 gross for 30 years straight to pay off the house. That might be easy, and it might be hard. It might work, it might not. And I say this knowing full well all the financial people recommend holding debt on your house.
For me? I’d go with the lower overhead.
Remember, Jeff wanted to quit working.
My question is, do you want to do that for the next 30 years for this dream house?
Or, scale down or
$1,000,000 - 20% down payment, closing costs assessed.
Over the life of a 30 year loan:
Interest paid out is $ 659,255. (APR 4.675%)
Interest & principal paid out $1,489,353
Debt reduction is generally an issue after decisions like what I’ve framed out above are already made.
Be proactive.