Stand out in crowded search results. Get high-res Virtual Staging images for your real estate quickly and effortlessly. (Get started for free)
Is it worth it to buy a $950k dream house instead of a $650k average home?
The age-old rule of thumb states that your monthly housing costs should not exceed 28-30% of your gross monthly income.
For a household earning $330,000 per year, that amounts to roughly $7,700 a month allocated for housing expenses, which significantly exceeds the typical expense of a $650,000 home.
A mortgage payment for a $950,000 home with a 20% down payment (around $190,000) at a 7% interest rate over 30 years can reach approximately $5,300 monthly, while a $650,000 home could have a payment over $4,000.
The difference in monthly payment might affect cash flow and the ability to invest elsewhere.
The concept of opportunity cost is critical in real estate.
If you invest the difference between the two home prices ($300,000 more for the dream house) into assets returning an average of 7% annually, you could see significant growth over time, potentially over $21,000 annually in returns.
Home equity is an important asset.
Buying a more expensive home could mean gaining equity more rapidly if the housing market appreciates, but it also carries risks of greater loss if market values decline.
The location of both homes can shape long-term financial benefits.
Homes in growing neighborhoods typically appreciate faster.
If the more expensive home is situated in a high-demand area, it could offer a greater long-term investment.
Property taxes vary significantly depending on state and local jurisdictions.
A home priced at $950,000 may incur higher taxes, impacting overall affordability compared to a $650,000 home.
The size of the homes can influence utility costs and maintenance.
A larger home requires more energy and upkeep, which can add significantly to the overall budget beyond just mortgage payments.
The psychological impact of homeownership should not be underestimated.
Owning your "dream" home may lead to increased satisfaction and lifestyle happiness, which can indirectly influence financial decisions, including spending and savings behavior.
With a $950,000 home, there could be more flexibility for renovations or alterations without overextending finances compared to the $650,000 option where funds might be tightly budgeted.
Buyers often underestimate the additional costs of homeownership, such as insurance, maintenance, and homeowners association fees.
These can compound the financial burden over time.
For a $650,000 home, fewer features may necessitate upgrades right after purchase, leading to extra expenses in renovations, which are less expected with a higher-end property that's move-in ready.
Mortgage insurance is often required for lower down payments.
If someone looks at a $650,000 home with a 3% down payment ($19,500), they may incur substantial PMI costs that could counterbalance the lower initial mortgage payment.
The current average mortgage interest rate fluctuates around 7%, but markets can shift influencing borrowing costs and the ultimate decision regarding which home to buy.
A $950,000 home may have better resale value, especially if it has premium features or is located in an area with higher income brackets tending to have greater demand.
There’s a psychological strategy called "anchoring" affecting the perception of what is a reasonable price.
A more expensive home could set a higher benchmark for expectations that might easily influence future financial decisions.
Rental income potential can play into a home purchase decision.
If one home has a basement or additional unit that could be rented out, the financial viability can shift significantly.
Interest rates and their potential future movements can significantly affect purchasing power.
A slight increase in rate can make a $950,000 home less affordable compared to the other option.
The concept of leverage is important.
Using borrowed funds to buy a more expensive home can amplify returns on investment if property values rise, but it also raises risk levels in economic downturns.
The nature of personal debt also affects affordability.
Consideration of the existing $30,000 debt should be factored in as it influences the debt-to-income ratio sought by lenders.
Finally, it can be beneficial to consult with a financial advisor who specializes in real estate investments to understand all dimensions of purchasing decisions, including risk versus potential rewards based on individual goals and financial scenarios.
Stand out in crowded search results. Get high-res Virtual Staging images for your real estate quickly and effortlessly. (Get started for free)