Buying a House When You “Can’t Afford It”

By Carlos Portocarrero

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pile of money

I’m ashamed.

I write about personal finance every single day and now I’m faced with breaking one of its cardinal rules.

The rule that, because so many other people were allowed to break, caused the housing market to crumble and brought the economy to its knees.

The rule that all personal-finance bloggers point to and wag their fingers when others don’t follow it.

I’m seriously considering buying my first home without having a 20% down payment.

Why it Matters

If you have 20% to put down, you’ll get a LOT of advantages:

  • A smaller monthly payment
  • Less interest to pay off over the life of the loan
  • No PMI
  • An easier time getting the loan in the first place

These are all great reasons to ensure you have at least 20% to put down when buying a home. But there’s more to it than that.

If you don’t have 20% of the purchase price, then you can’t afford the house.

And that’s what I’m struggling with.

Why Not Wait?

That’s the obvious question. I posed it to my readers a few weeks ago and they were pretty unanimous—I should wait until I have the 20% or I should look at a lower price point.

But I don’t want to wait. I want a house and I want to buy it with the 13% down payment I have saved up.

I can’t rationalize this, I just want a place that’s too nice for my own good. Bigger. With stuff I want, like central A/C, a washer/dryer, and two bedrooms. Oh, and I don’t want to live in a garden unit.

Is this too much to ask? Apparently it is. At least for the amount of money I have and make.

The Options

  • I could wait and continue saving more and more money until I hit the 20% threshold, which would make me feel clean and responsible
  • I could buy now, say screw it, and deal with the consequences later—including the guilt
  • I could raid my Roth IRA and come up with the difference that way, which I know is a bad idea in the long term

But I know what I want to do: I want to buy a house I can’t technically afford. At least not by the common definitions that I live by as a personal-finance blogger. So I’d feel like a hypocrite. I’d feel like I’m overreaching.

Does this make me a bad person or just a bad personal-finance blogger?

[I wrote a follow up post to this one over on Wisebread that has gotten a lot of great feedback on ways of making this happen and on reasons why it’s a terrible idea. Be sure to check it out and chime in!]

Photo by AMagill

17 Responses to “Buying a House When You “Can’t Afford It””

  • Jimmy Day Says:

    It doesn’t make you a bad personal finance blogger, nor does it make you a bad person. What it does make you is someone who’s willing to go against conventional wisdom and take a risk. Many, many people have done the same before you and have benefited immensely. If you’re comfortable taking that risk and have defined a feasible contingency plan, I say go for it and don’t worry what other people / bloggers think about it. Best of luck to you.

  • josh Says:

    BUY the place, especially if you and your wife both like it. If you like it, than do not wait. I would take the money out of your Roth if you worry about the big payments. You are young, you can always save later.

  • Ellen Says:

    I don’t think it makes you a bad person or a bad blogger.
    Now granted, I am not a homeowner myself, nor anywhere close (nor even trying) — but acknowledging that you’re feeling this means that you understand when people make inadvisable housing choices. You can relate! And by publicly wrestling with the temptation you let other people know that it’s okay to have it even if you choose not to act on it.

  • Melissa Says:

    You can tap your principal investment in your Roth without penalty (aside from whatever transaction fee may occur). I don’t think that would be shameful at all.

  • Financial Samurai Says:

    Howide Partner – Please, PLEASE don’t buy the house until you have at least 30% of the House value down! Please?

    Unless you have 70,000 readers like Trent and JD, and make $20 to probably $40,000/month just from blogging, don’t do it!

    Do not co-mingle your finds, which means no raiding of anything. A house is indeed a special place, but it will be your nightmare if you suddenly lose all your income. You need to come up with 20% down, and then have that further 10% buffer just in case something happens.

    $1 mil house? $200,000 down, $100,000 buffer in cash. It’s that simple.

    Hang tough, and don’t fall into the temptation. And if you need any more straight from the gut advice, come by Financial Samurai and share your thoughts.


  • josh Says:

    Financial Samurai that is simply bad advice. Not everyone needs 20% down to buy a house. You could put 50% down and lose your income and, thus, lose your house. I am sure he has worked out budgets galore to see if he can afford the mortgage, if he can than he should buy. He is wasting money renting an apartment, not gaining any equity. This is a great time to buy. If he waites till he has 30% the house may be off the market or worse it could rise in value.

  • Nut Says:

    Melissa: I’m aware of the Roth flexibilities to get money out, and I thought of that. But you can only put so much in every year and I don’t want to even touch that, to be honest.

    We’ll see where we end up…our broker is pressuring us pretty hard for an answer tonight!

  • Financial Samurai Says:

    Josh – Have we not learned anything from this downturn? It’s people buying things they cannot afford. There used to be a time when people put 100% down for their house. How did we get to even just 20%?

    It’s not waiting until buying 20% it’s the reality that he can’t afford it! Save more, make more first!

  • Kevin Says:

    Trent and JD make $40,000 A MONTH blogging???

  • Buying a First Home: The Feedback Says:

    […] « Buying a House When You “Can’t Afford It” […]

  • josh Says:

    Samurai: Fraud is what caused the problems we are in today. People were getting mortgages with no documents or using fraudulent documents. Mortgage companies and their brokers were performing criminal acts allowing people to get a mortgage who had no business getting a mortgage. Times are somewhat different now. If they qualify for a mortgage, he and his wife have gone through a much stricter process than in the past. Nut has money to buy a house and has money to afford the payments. If he didn’t he would not be considering the purchase. Both he and his wife work. Mortgage rates are still low and the housing market is close to a bottom. This is the perfect chance to buy. Nut just needs some nuts to buy the house. He should come to the realization that he may be missing a great opportunity. People have to take some risk in thier lives, it may mean other sacrafices such as not taking a trip. Nut said it would cost only an extra $400 a month between his rent now and his new mortgage. We are not talking a lot of money each month.

  • Why are we so weak when it comes to housing? | Financial Samurai Says:

    […] at a new found site called Writer’s Coin, the 28 year old personal finance writer questions whether he should buy this house if he only has […]

  • Buying a Place: The One That Got Away Says:

    […] post on Wisebread had a bunch of differing opinions on what not to do. The post on this site was more of a confessional to get some stuff off my […]

  • Ryan Says:

    I wouldn’t say it makes you a bad person, it just shows that you’re human like the rest of us. You’re motivated by the real world more so than your bank account and want “stuff” – in your instance, space and a garden unit.

    I think, however, the cost/benefit of the situation is fairly obvious and if the majority of people are telling you you’re thinking is wrong, then it most likely is. Kinda like polling the audience in “who wants to be a millionaire?”

    Try to think rationally – how much longer would it take you to save versus what’s the worse that could happen if you didn’t save that extra 7%. Some of the first comments on this post mention that you’re taking a risk, but what’s the upside to that risk and are you willing to face the consequences if that risk comes back to bite you in the butt? Risks are only worth taking when measured correctly.

    Remember that a house is technically a liability because you’re feeding it. If you were purchasing a four-plex and living in one of the units it might be a bit of a different story.

    This is all just food for thought, I see this is an older post so hopefully you made a wise choice by now.

    Ryan @ Plantingdollars

  • Nut Says:

    Ryan, we still haven’t bought and are still looking! You can check out an update here.

  • Dwi Says:

    Don’t do it. You are stretching your finances to follow a life style you will not be able to afford. I understand the feeling that people get when they are personally attached to a house that is slightly beyond their budget. There are thousands (and possibly millions depending where you live) of different living options. I guarantee you will be able to find a place you enjoy when you have the correct amount of money saved up. This allows you to suppress the American urge of instant gratification and ‘I want it sooner and bigger’ and will make it much more worthwhile. My two cents…

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