Ask Yourself These 4 Questions Before Buying a Larger Home
by Maurie Backman | Updated July 19, 2021 - First published on Jan. 23, 2021
Before you upsize, consider these important points.
If you've been thinking of ditching your starter home and buying a larger property, now may be a good time to do so. Mortgage rates are sitting at historic lows, which means you have a real opportunity to lock in affordable monthly payments on a home loan. But before you start contacting lenders and submitting those mortgage applications, think about whether a larger home is a smart idea for you. Specifically, these four questions can help you make your decision.
1. What's the opportunity cost?
The more money you spend on a home, the less you'll have available to spend on other things. (For the sake of this article, we're assuming that a larger home is more expensive, even though that's technically not always the case.) If you're the type who enjoys travel or dining out, a more expensive mortgage payment could make it harder to do those things. Also, the more you spend on a home, the more difficult it will be to meet other financial goals you might have, like saving for retirement. Think about what you'll have to give up to buy a larger home and make sure it's worth it.
2. How much will my property taxes rise?
The larger your home, the higher your property tax bill is likely to be. Property taxes aren't universal or arbitrary. Rather, they're calculated by taking your city's tax rate and multiplying it by the assessed value of your home. If you're staying in the same neighborhood but are moving from 1,800 square feet to 3,000, it stands to reason that your new home will be worth more than your old one, so your taxes will reflect that in the form of a higher bill. (You should expect your homeowners insurance, heating, and cooling costs to rise, too, but a higher property tax bill is more likely to catch you off guard.)
3. Will I need or be tempted to buy more stuff?
Your goal in buying a larger home probably isn't to have several empty rooms on hand. Rather, you'll want or need to fill those rooms with stuff -- furniture, artwork, or even toys, if you're a parent. But those items will cost money, so think about whether you really need that added space, because it could serve as additional temptation to spend.
4. Can I get some of my money back?
A larger home is apt to cost you more money, but you may be able to recoup some of those added expenses if your new space is conducive to getting a tenant. For example, if you buy a larger home with a finished basement or in-law suite, you may have no problem renting it out and using that money to cover your extra expenses.
There are plenty of good reasons to upsize your home, but before you do, be sure to look at the pros and cons. More space might make life more pleasant and comfortable, but it'll cost you in other ways. As is the case with any major decision, take plenty of time to work through this one before moving forward.
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