Emotional purchases and buying houses

Hi!

To be clear - I had always planned to buy a house to live in. The plan, though, was to get one when I was about to retire. I'd have the location to retire in locked, and have the cash (or cheque) in hand to buy it outright. It's the logical thing to do! But now I’ve dumped those conditions and bought a house.

Premature house-buying syndrome

Buying a house prematurely can screw up your finances and personal well being. There's pressure from everywhere (read parents) to get the largest house you can afford. Why? Because why settle for one bedroom when you can afford two? There's a chance a guest might drop in once a year so you'll need the space. It's okay if the price is 100% more now. You're working anyway, and it's only a matter of time before you get promoted to the CEO of a FAANG company to pay it off before you retire. And banks make it harder to counter argue by approving loans with just a 20, sometimes even 15% down payment.

EMIs for such a high loan amount will eat into your budget, and leave little to spend, let alone save for retirement or other goals. I shudder to think of folks who put 70%+ income to servicing their loans. What if there's an emergency?

Another factor that brings in so much anxiety is what if you hate your job, or you get laid off. How do you plan on affording the monthly payments? Taking a break to recharge is unimaginable if you're paying off a 30 year mortgage.

And let's say you complete paying off your loan when you're 50 or 55. What if you decide that place is not where you want to spend your retirement? You're stuck now. The house is 30 years old and not going to appreciate in value. New houses with similar amenities in the place of your dreams have outpaced your house's value now. If you need a new house, you’ll need to shell out cash. Again. But without loans now. No bank's going to give a loan to a retiree!

It's an emotional thing

I’d said all of this to my parents when they asked me to buy a house when I got my first salary - yet I bought myself a house. Well, now I’m not the robotic guy I was so all my purchases are not logical ones anymore. And this one was purely whimsical.

It's this case of finding what my wife and I liked for what we need in the near future. And we agreed that it's not worth the hassle of finding something similar for rent and then hoping we don't get kicked out. Let's just call us lazy.

To back up this bizarre decision, we thought about how to minimise the blow to our finances.

We got a house that fits our needs, and no more. We needed a 3BHK, and our current 2BHK would become small when our kid grows up and needs her own space for study and play. I work from home most days now, so I need a room for work. And one room for me and my wife. No more. We could theoretically be eligible for a loan for a 4BHK with our incomes, but we decided that’s too much for how we live right now.

The loan amount is high in absolute terms, but manageable with our income. It takes up less than 30% of our take home pay, and if need be, can fit into 50% of only one of our pay. We're also planning on selling off the house we currently live in to reduce the loan amount (Disclosure - house came with wife. So it was either wife and house both or no wife. Easy peasy decision).

Location is something we were concerned about because it's close to offices, which is not ideal for us retirement. To cushion that inevitable rise in prices, we're still continuing to put in money for a retirement house. We plan on selling this house when we move. We don’t want the hassle of finding tenants and managing property from afar.

What we liked

We’d gone to a property show to “window-shop model houses” as my wife puts it. She’d had an itch and I went along. We looked at about 30 apartment buildings and they all were so similar in their suboptimal design. In order for the house to look big, they’d use up all of the space in the huge hallway and dining area and compromise on the bedrooms. We were living in one ourselves, and felt the pain where we had to choose between having a king size bed or opening our cupboards.

On the way back from one of our window shopping houses, we stumbled upon one complex that was still under construction. The construction company had a decent track record of quality construction, but didn’t come to the show. We went in and really liked the model house! They compromised on some socializing areas in the house, but more than made up for it with large bedrooms and two decently-sized balconies. And we’d seen so many blueprints that we guessed the suboptimal design trend would stay for a while. We didn’t want to miss out so we decided to buy it outright.

One thing living with a one-year old kid has taught us is that we’re going to have to be okay with plans changing all the time. Weirdly my wife and I like to plan things, and we’re now okay with figuring things out on the fly. Maybe we’re just exhausted all the time and don’t want to think, let alone overthink.

Until next time!