Very Personal Finance: Big House v. Little House: Which Can You Afford?

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You may be tempted to buy the bigger house — but don't forget all the extra costs that come with it.

Years ago, I watched a credit card issuer’s TV commercial caution against overspending. “Just because you can doesn’t mean you should” was the gist of the ad campaign. In other words, just because you have a $10,000 credit limit doesn’t mean you should charge $10,000. That message always stuck with me.

Yet when I got pre-approved 12 years ago for a home loan up to $190,000, enough for a nice home in Kansas City, Missouri, at that time, I was tempted to go big. I envisioned a sprawling house, huge yard, twice as much space and a stylish kitchen. However, I quickly came to my senses.

I knew I couldn’t afford a $190,000 mortgage, even if the bank had determined that I was able to swing it with only 5 percent down, a lenient loan practice of the time. Instead, I put down 12 percent toward $137,000 for an 800-square-foot home in an ideal location.

Was the kitchen stylish? Not especially. But I had money left over to fence the small backyard, and my dog was just as happy to chase tennis balls as he would have been in a pricier home’s park-like setting. My new home had a garage and a wood-burning fireplace. Oh, and barely affordable mortgage payments, even though I was $50,000 under what the bank was willing to lend.

Now that I’ve been a homeowner for more than a decade, I’m glad I went small. If you’ve got a family, maybe you need a large house. However, if a smaller house is a viable option, you’ll save money on a lot more than your monthly mortgage payment.

Here are 5 factors to think about before you close on a home that may be too big for your budget.

1. Your down payment goes further

A smaller house generally has a lower price than roomier abodes. That means you have a better shot at being able to put 20 percent down, which allows you to avoid the additional cost of private mortgage insurance on conventional loans.

2. Utilities are significantly lower

One time, a friend and I were griping about high utility bills. When I disclosed that my electric bill was $100 a month during the height of summer, she was shocked. Her bill was four times that amount. She’s less frugal with her usage, but I’m not exactly typing this by candlelight, either. We both use electricity, but my house is half the size of hers, so I use less. Our gas and water bills worked out the same way.

3. Everything about the house costs less

With a home, utilities are just a small piece of ongoing expenses. I pay someone $20 to mow my lawn instead of the $60 I’d have to pay to cut the pastoral lawn of my house-hunting dreams. When I replaced my furnace and air conditioning units, which cost around $3,000 each. But if you own a large home, you’ll pay at least twice the amount you’d pay with a smaller home for furnaces and air conditioners, hot water heaters, roof replacement and exterior painting.

4. Property taxes and insurance are lower

House size makes a difference in how much you pay for property taxes and insurance, which can be especially painful in cities and counties with high taxes. A more expensive house also means higher homeowner’s insurance premiums.

5. You might even be able to pay the house off

My house payoff date is seven years away, and I’ve got around $75,000 to $90,000 in home equity by now. Meanwhile, I know people who bought a house at the top of their pre-approval limit around the same time I purchased mine, and they’re just now at a break-even point.

If you make enough money to buy a big house, then the more rooms, the merrier. However, if it took you forever to save a down payment, or a paid-off house is part of your retirement plan, you may want to rethink that extra bedroom before locking yourself into a house you can’t afford.

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Meet the Author

Deb Hipp

Deb Hipp


Hipp is a freelance writer based out of Missouri.

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