Why My Friends Who Own a $1 Million Home Just Went Into Debt Over a $5,000 HVAC Repair

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  • Taking on too high a mortgage can lead to a cash-strapped lifestyle.
  • It could also lead to debt when unplanned expenses arise.

Let's just say they made a big mistake in buying their home.

When mortgage rates started to plunge to record lows during the second half of 2020, two friends of mine who had gotten married a few years prior decided to dive into homeownership. They'd been saving up for a house and had decent incomes, so they figured they'd take advantage of those low rates and increase their home-buying budget.

Initially, they told themselves they'd buy a home that was $800,000 or less. (For some context, we all live in New Jersey, and while an $800,000 property is certainly a nice one, it's not necessarily a mansion.) But the more they looked, the more they realized that if they stretched their budget a bit more, they could have a really amazing house instead.

So that's what they did. They wound up buying a $1 million home and putting 20% down at closing, leaving them with a giant whopper of a mortgage. And while they were happy with that decision at first, they're now at the point where they regret it.

A big mistake

My friends knew going into their home purchase that they'd be spending a lot of their income on housing. But they were okay with that. They figured that if they had a comfortable home, they'd cook more in their large kitchen and spend more time in their park-like backyard rather than take trips or go out to eat.

That plan worked for a while, and to be fair, they did cut back on leisure spending. But they also started spending a lot more on not just their mortgage payments, but also, maintenance and repairs.

In fact, the cost of owning their home became so tremendous that they wound up virtually draining their savings. And that left them in a really tough spot earlier this year when their HVAC system broke down.

House poor, and now in debt

My friends who own a $1 million home (actually, more like $1.1 million at this point based on market value) now have a $5,000 credit card balance they're paying off over time. The reason? They depleted most of their savings for the down payment on that home, and pretty much wiped out the rest in the course of maintenance and repairs during their first couple of years in it. And so when they encountered a recent HVAC issue, they had to charge it and pay it off over time.

My friends acknowledge that their situation is problematic, as they're the spot-on definition of being house poor. But they also feel stuck.

Sure, they could sell their home and move to a less expensive one. But then they'll lose money to real estate agent fees and closing costs on a new mortgage. Plus, mortgage rates are super high right now, so while they're paying under 3% on their home loan at present, if they sign a new mortgage, they could end up paying over 7%.

For now, my friends are planning to stay put but cut expenses even more, and they're both looking to take on second jobs to pay off their debt as quickly as possible and boost their cash reserves. But either way, they learned the hard way that taking on too much house can have consequences. And they've agreed to let me share their story so that other buyers can learn from their mistake -- and avoid doing the same thing.

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