How do people afford a 1 million mortgage

I could afford a two million dollar house, but I'm not - because I've figured out something that many will never understand

When my husband and I started looking for our “permanent home” in 2014, we weren't looking for a kind of starter castle or a “dream home”. We were just hoping to buy a humble three or four bedroom home with a neighborhood with kids. However, we wanted to spend less than $ 250,000. That's a realistic expectation considering we live in Central Indiana.

We have spent less than we could have afforded

We got lucky and found exactly what we were looking for - a four bedroom, two and a half bathroom house in a great neighborhood with a large, fenced yard. The list price was around $ 190,000. We were able to negotiate this price down to $ 187,500.

We could have afforded a lot more at the time, but we wanted to have some financial leeway to be able to remodel the house to our taste. That also means we were able to spend about $ 100,000 between 2014 and 2019 to set up an additional family room. We were also able to afford a new terrace and the garden design.

My husband and I have been quite cautious about money since our late twenties. That is one of the reasons why we spent significantly less than we could technically “afford”. When calculating what we could have spent on living space, systems showed us double, triple, or even more of the amount we ended up spending. We always ignored these machines and went our own way.

According to calculators, we could spend two million dollars

We are now earning significantly more than when we bought the house. In fact, we make so much that, according to a real estate database, we could spend $ 2 million on our primary residence. This calculation is based on the one hand on our income and on the other hand on the fact that we have no debts.

But for us this is totally insane.

Mortgage calculators are wrong because they only take into account your basic financial information - such as your gross income and debts. Other important factors, such as your personal attitude towards debt or your long-term financial goals, are not taken into account.

The larger the property, the higher the maintenance costs

In addition, such computers do not pay attention to how much house you take care of want and the additional costs for cleaning, maintenance and upkeep of a larger property. Of course, a larger house with more square meters incurs higher costs if you have to replace the roof or redo the floor.

Most mortgage calculators assume that you want to bet on a thirty-year mortgage. This extends your payment and ensures that you have a higher loan amount. But not everyone wants to pay off their house for three decades, right?

No matter what mortgage calculator or even your bank say, just you know how much you can spend on a home. That's why my husband and I didn't buy such a huge, extravagant house. We don't need more space than we already have. And we are painfully aware of what we would be giving up.

We could save less with a more expensive house

If we had a huge mortgage and an oversized mortgage payment, we could be saving significantly less money and investing less monthly in our planned early retirement. We would also have to greatly reduce our annual travel budget. This is usually quite high - we travel at least four months a year.

If our monthly expenses were higher, we might also be able to spend less on activities for our children. And we might not have that much money to spend on college education. We should also have significantly more emergency savings on our savings account in the event that we would have to pay for a new roof, repair costs for heating or air conditioning in the future.

Also read: Retirement at 28: Millennials earn 60,000 euros a year without working

More importantly, I think we'd have to get used to not sleeping so well at night. Every time you increase your monthly fixed expenses, you have to worry about what happens if you get sick or your income drops overnight. With a large monthly mortgage payment, perhaps set for 30 years, we'd be wondering what to do if we couldn't keep paying it.

Decide for yourself how much you want to spend on a property

When you're ready to buy property and trying out mortgage calculators or talking to lenders about how much you can allow yourself to borrow, always remember that the business model of banks is to lend money. They may understand how much you make and what your debt is like, but it is not your job to understand your lifestyle, your hopes, or your dreams.

Only you can decide how much you want to spend and how you want to live. So make your own decisions and don't let a computer or a big bank do it for you.

This article has been translated from English. You can find the original here.