Let’s face it: we’ve all looked up the street, neighborhood, or town at the ‘Jones’ expensive home and wondered, “How on EARTH do they afford that?!” Today, we’ll do a case study on just that!
An actual example from one of my clients.
They purchased a starter home, 2,000 square feet, at 4.75% interest and chose to do a 15 year mortgage and were paying PMI (mortgage insurance because they didn’t have the 20% down payment to put towards their new home). Time goes by, they have a few kids, they do some upgrades and keep their house in good, marketable condition.
They decide to buy a brand new home, 3,200 square feet, in a brand new neighborhood. Because they chose a 15 year loan on their first home (which is not always advisable, but here worked in their favor), they paid down extra principle on their mortgage and were able to use the equity they had on their home, plus the fact that home prices went up, and walked away with $90,000.
They put that towards their new home, chose a 30 year mortgage, got a 4.3% interest rate, and are no longer paying PMI because they have a large enough down payment.
All this to say, they upgraded to a significantly nicer and brand new home… but are only paying $400 more a month.
Most people afford expensive homes by upgrading as they go through life. Most people live in their homes for 5-7 years, and in that time, between paying principle down on their mortgage and from home values rising, they are able to sell their home to get a large enough down payment to upgrade to a larger, better home. And sometimes, like in our case study, they will see only a small increase in their mortgage payment when making these changes.
And really, short of being an heiress or getting a major bonus at work, most people are able to own expensive homes through a series of home upgrades through their lives. So hang on, keep paying down the balance of your home, and look forward to your dream home! Just make sure to keep a Pinterest board for your forever home so you remember everything you want in that some-day home!