Buying A House: Should I Borrow More Money Than I Need Since Rates Are Low?

We’re in the same situation right now with shopping around for a house. We decided for put down between 20-25% to reduce the mortgage, as long as we have 6 months worth of emergency fund (cost of expenses x 6) in savings left.

We also lowered our budget by $50-100K, and are started to see a number of houses that we liked, in good shape and are much cheaper in price than the houses we started with our first budget. The goal here is so that one person’s income can cover the entire monthly house payments, to reduce pressure.

Good luck! ... See all content Hide content

4 months, 2 weeks ago by Tina Su - Think Simple Now on Wordpress

My vote depends on what you do with the extra money. If you are going to throw it in the market or stuff it in a savings account then why borrow more? It’s not going to help you. If you are serious about leveraging that asset then I think you should borrow as much as you can. How else can you get tax-favorable access to that sum of money? If you needed to access it later then you’d have to ask permission. It’s your money take it. Remember the return on equity is zero. It’s the house that appreciates, hopefully! ... See all content Hide content

4 months, 3 weeks ago by Evolution Of Wealth on Wordpress

@Thursday Bram

Congrats on your house! Our house is a bit on the older side as well but we should find out if there will be any major expenses this thursday when the inspections take place. If anything has to be fixed immediately, that will greatly influence the loan amount I take out. The thing I don’t like about borrowing more but paying down the mortgage faster is that the monthly payment remains the same. In theory it has the same effect of increasing your principal but psychologically it doesn’t feel that way. ... See all content Hide content

4 months, 3 weeks ago by Steve on Wordpress

@Matt

Interesting. If your house only costs 21% of your net income, how would getting a much smaller mortgage impact your life today? Since the percentage is not a huge percentage of your earnings, why do you regret getting the larger loan? Thanks for all of the kind wishes. Right now the house is ours to lose and I have a few weeks to decide on the loan amount.

4 months, 3 weeks ago by Steve on Wordpress

@David

Yes, we are getting the same house regardless of how much we borrow and we are planning on putting down over 40% on the house to get the lowest rate possible. The question is whether to put even more down. What’s funny about this is that my friends are all over the map. The general thought is that if we have significant inflation in the next 5 years that it’s better to have the money on hand. I agree with your point #2 and #4. It’s just that 4 big expenses are happening simultaneously, the house purchase, a minivan(more on this later), a second child, and preschool for my daughter. Thanks for your input! ... See all content Hide content

4 months, 3 weeks ago by Steve on Wordpress

It comes down to what you and your wife are comfortable with. Set a budget for the house purchase and don’t exceed that price or negotiaite the price of the home down. In your market, you should be able to get a great deal. This is not the last house you will purchase in your lifetime so buy in a good location for a good price and years from now, you will be bale to move up to that dream home . Good luck!! ... See all content Hide content

4 months, 3 weeks ago by Gail on Wordpress

We actually just closed on a house last Friday and faced a similar problem. We actually chose to go with a slightly larger mortgage in order to keep a larger just-in case fund.

In our case, the decision came down to the house itself. We got an absolute deal on the house, partially because the furnace is older than I am. Sooner or later, it’s going to go and I’d much rather have the money on hand to fix it — sure, we’re paying more interest to the bank, but if the alternative is putting a new furnace on a credit card, I’d much rather pay the much lower rate on the mortgage. That said, I know we would have gone with a smaller mortgage if we bought a newer house.

We are making up for that larger mortgage by making additional payments: in the long run, the interest we’re paying is worth the piece of mind I have about buying a new furnace. It’s not always a matter of money — feeling comfortable with your financial situation is an important benefit. ... See all content Hide content

4 months, 3 weeks ago by Thursday Bram on Wordpress

Steve @mywifequit is buying a house. Should he Borrow More while rates or low, or follow his gut and Borrow Less? http://su.pr/2Hbz58

4 months, 3 weeks ago by MattJabs on Twitter

Hey Steve,

This is a no brainer for me. Stick with your principles and “Take out a larger mortgage while maintaining a large enough nest egg for a years worth of burn rate in case something bad happens.”

Wisdom dictates that it is never a good decision to presume upon the future. Two years ago my wife and I were in a similar situation and took out more mortgage that we should have. Hindsight shows me that getting a much smaller mortgage would have been a far better decision, especially in these uncertain economic times. And our house costs us only 21% of our NET income. Food for thought.

I wish you and your wife all wisdom in this very important decision you have to make.

Cheers! ... See all content Hide content

4 months, 3 weeks ago by Matt Jabs on Wordpress

Social comments and analytics for this post…

This post was mentioned on Twitter by TrueSmallBiz: Buying A House: Should I Borrow More Money Than I Need Since Rates Are Low? http://bit.ly/RYy7v…

4 months, 3 weeks ago by uberVU - social comments on Wordpress

A good analysis, and one which all home purchasers should go through. I’ve done it both ways, and at the respective times in my life, both were the right decision and I had no regrets. Sorry I can’t weigh in with any additional help.

4 months, 3 weeks ago by Mary Jo on Wordpress