Should we use 90% of our savings to buy a home?


Dear Benny,

My boyfriend and I are 34 years old, have been together for 10 years, and make about $10,000 a month after taxes. I contribute 5% of my annual salary to charity. We have no other debt except for my graduate school student loan debt, which must be repaid within three years.

About four years ago, we bought a small, inexpensive home for one family near our workplace. The house was less than we could afford, so we could save up and eventually go back to a city we all love that’s expensive. We intended to keep and rent the house when we moved, as a way to diversify our investments.

In the last 10 years we’ve been in business, we’ve been able to save about $150,000. I think we should use 90% of our savings to finally move to the city. I’m nervous that if we wait, we’ll be priced again due to higher housing costs, higher interest rates and inflation.

Although this has always been the plan, we get nervous to use so much of our money at once. My family didn’t have a lot of money growing up, so I always hoarded money and struggled with anxiety. What if another recession is coming soon? We have a cheap and easy – albeit boring – life in our current town, with lots of friends. We will basically have to start over to build life, even though it will be in the city we love.

Also, most homes are outside our price range in this city. We can’t decide whether to buy an apartment, which we don’t like, wait for the right home, or buy a cheaper home in an upcoming neighborhood. I worry that the apartment will not have good resale value, or even impossible to sell. Should we buy a second home? Should we buy an apartment or try to buy a house in our budget?

Uncertainty about the investor

dear not sure,

Buying your dream home does not buy you the life of your dreams. You can buy the perfect home in the city you love. However, life will still be boring if you cannot afford to experience the big city life because housing costs drain your budget.

There seem to be four options on the table: stick to the “proper home” in the city, the cheapest house in the next neighborhood, or the apartment or residence where you are.

I don’t think you should use 90% of your savings to buy a home. This doesn’t mean that using 90% of your savings to buy a home is always a bad move. In fact, in today’s frenetic real estate market, spending a significant portion of savings is the only way many people will become homeowners. But I doubt the remaining $15,000 will be enough for the recommended six-month emergency fund. The fact that spending gives you anxiety makes me think you should proceed with caution.

The apartment is easy to leave out. You doubt its value as an investment, plus you don’t seem to want to live in it.

This leaves you with two options: move to the city’s up-and-coming neighborhood or stay where you are. I can’t tell you what is the best option for you. It boils down to whether you crave stability and connection to the novelty of a new city.

As you wrestle with this decision, try not to put too much weight on what your goal was a decade ago when you bought your current home. As life changes, so do our priorities. What you wanted 10 years ago may not be what you want now.

Also, try to be realistic about what life in the city will look like to you. Visiting a place is very different from living there. If you’re a homebody now, it’s likely that moving to the big city won’t turn you two into a pair of planes.

Your economic concerns are certainly correct. But if you have a home that you really want to live in that fits within your budget, stagnation isn’t too worrisome. If you are committed to staying for several years and have good savings, you can wait until the downturn. I wouldn’t worry too much about getting rid of a future home because you’ll keep building equity. Plus, once you pay off your student loans in three years, you’ll free up more room in your budget if you choose to upgrade.

It is true that buying a home is an investment, and real estate tends to be a good investment over time. But most importantly, your home is a place to live. Focus more on what you want out of life first and less on future resale value.

Robin Hartell is a certified financial planner and senior writer for The Penny Hoarder. Send your tough financial questions to [email protected].




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