Who’s influencing the biggest purchase of your lifetime?
Dropping $3.25 on a coffee without seeking the wisdom of elders, knowledge of gurus and philosophies of wise sages isn’t a big deal.
Dropping $325K on a house without seeking advice could ruin you.
We’ve talked to many people who got in way over their heads by making an uninformed or misguided housing purchase.
Not exactly uninformed, but informed and guided only by the bank, realtor and those who stand to profit from the transaction. Government programs included. Of course you should listen to these folks, but not exclusively.
Letting the bank tell you how much house you can afford is like letting the fox estimate the number of chickens in your coop. (To quote the book “The Millionaire Next Door.”)
Just because you “qualify” doesn’t mean it’s a good idea. Ask the millions of families who couldn’t keep up and underwent foreclosure or had to sell short; they qualified too.
Not everyone in the housing business is a crook, but there are too many stories about desperate agents who push buyers into something they can’t afford so they can pay their own mortgage.
Who’s in your corner?
You ask friends, family and Google for all kinds of advice on much smaller purchases. But for some reason when it comes to the single biggest purchase of your life, you treat it like another impulse buy.
How about including your parents in the conversation? Maybe they’ve made some mistakes you can learn from.
And what about your friends who bought a few years ago? Take them out for a $3.25 coffee, ask them about the experience and take notes. Ask how they felt about the finances at the time and how things are going now. Get the real story, the one they aren’t advertising on Instagram.
Read some books. Do your research. Determine your own financial goals and see how a house supports those goals (not just the bank’s goals, they’ll be OK without you).
Here’s some quick advice. When the bank tells you what you qualify for, cut that number by 30 percent and start your house hunting there. When your realtor looks at you like you are crazy, tell them you don’t want to resent your house because you’re eating rice for breakfast and only heating and cooling one room at a time so you can afford to pay the mortgage.
Look up the phrase “house poor.” Read a few articles from people who regret buying too much house. Learn from those who bought a house the right way and the wrong way.
You can buy a house (if that’s what you want). Just don’t buy a house too young, too quickly and one that’s too expensive.
And make sure you talk to as many people who won’t benefit financially from the transaction as those who will.
Derek and Carrie Olsen are monthly money columnists for Ink challenging you to take a closer look at your finances. This is the first in a six-month series on planning and budgeting for home related expenses. They’ve also written two best selling books on the topic of personal finances. For more go to derekandcarrie.com.