When looking for real estate, buyers often discover that no matter what price range they explore, the house they REALLY want to buy, the house containing EVERYTHING on their current "wish list", is always just out of their reach. Amazingly, this phenomena occurs whether the couple is settling for a $150,000 home, while yearning for a $200,000 property; or inspecting a $500,000 house, while longing for a $600,000 residence.

With interest rates low, and housing prices on the rise, justifying that "stretch" to get your dream house may be easier than you think. Here are some reasons to contemplate increasing the price range of your home search.

Advantage #1: Other People's Money

The leverage you gain using Other People's Money is one of the nicest parts of buying a home. With interest rates attractively low, you may find you have the ability to qualify for a higher mortgage amount than you originally thought. A small down payment, (usually no more than 10 - 20 % of the purchase price), is all the cash you may need to contribute to the purchase price. Even so, as the property increases in value, you reap the benefits of the total asset. Therefore, if you buy a house for $150,000, with $15,000 down, and that home appreciates 10% a year for the next two years, you will have amassed $30,000 in additional equity. That's a 200% return on your original investment. If you stretch a bit, and buy the $200,000 home, your gain would be $40,000 in two years.

Advantage #2: More Tax Benefits

The interest you pay on your mortgage is tax deductible. So, the more you borrow, the greater your tax shelter. Think of it, at the same time your larger house is making you more money through appreciation, the government is also permitting you a bigger tax allowance. It doesn't get much better than that !

Advantage # 3: More Stability

If you are like most people, you HATE to move. Besides all the packing and unpacking, there are the other costs -- financial, physical, and emotional-- associated with relocating. The closing costs alone involved with selling and re-buying a home can account for thousands of dollars ( real estate commissions, transfer tax, and various certificates on the seller side; points, title costs, etc. on the buyer's side). Add to this the time and stress involved with settling in at a new location, and you have powerful reasons for trying to 'stay put' as long as possible. Buying that bigger (more expensive) home may allow you to do just that.

Advantage # 4: Getting What You Really Want

The most compelling argument for stretching your purchasing power might well be the joy you will feel each time you come home to the house you REALLY wanted !

AND NOW, THE FLIP SIDE

Since few things in life are simply black or white, Here is the flip side: Reasons you may NOT want to stretch your price range.

Disadvantage #1: What Goes Up

While housing prices may continue to rise, they may also fall. Past history has shown that the law of gravity certainly applies to the housing market. Interest rates, regional economies, even weather conditions can drastically alter the value of a home. You need to, at the very least, look at the possibility of that $600,000 dream house being worth $500,000 or less, and ask yourself the question, "What if this happens, and I have to sell ?"

Disadvantage #2: Job Security?

Gone are the days when the average person can count on working for a company for 25 years, retiring with the pension and a gold watch. Taking on a larger mortgage probably means you have to continuously produce income at the same level (or higher) for many years to come. You need to ask yourself the following question: "How secure is my job?". Look at the company, the industry, and the region. While no one can predict the future, don't let the possibility of down-sizing, out-sourcing, or consolidation catch you completely by surprise. In addition, ask yourself, "Do I like what I am doing?" Having the luxury to just pick up and pursue a new career might be severely limited by the financial pressures of a larger mortgage.

Disadvantage #3: And Baby Makes Three

Many young couples purchase a home as the first step to starting a family. Stretching the limits of your qualifying range often means that both the husband's and wife's salaries are needed to meet the demands of an increased payment. This is true not only at the time of the purchase, but for years to come. You need to ask yourself the question, " Do future plans include both partners continuing to work after the child/children are born?"

So, there you have it. Whether you choose to go for the larger house, or opt for a more conservative purchase will depend upon your personal make-up. Specifically, your ability to tolerate risk. As always, seeking the advice of a financial advisor before making any real estate purchase is a wise move.

Published: July 31, 1998

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